IN  MEMORIAM 
BERNARD  MOSES 


PEINCIPLES  OF  POLITICAL  ECONOMY. 


PROFESSOR  PERRY'S  WORKS  ON 
POLITICAL  ECONOMY. 


I.     INTRODUCTION   TO    POLITICAL    ECONOMY.     Fifth 
Edition.     I2mo.     357  pp.     Price,  $1.50. 

2.  PRINCIPLES  OF  POLITICAL   ECONOMY.    8vo.     585 

pp.      Price,  $2.00. 

3.  POLITICAL  ECONOMY.     Twenty-First  Edition.    Crown 

8vo.    600  pp.     Price,  $2.50. 


PBINCIPLES 


OF 


POLITICAL    ECONOMY 


BY 


ARTHUR   LATHAM  PERRY,   LL.D. 

ORRIN  SAGE  PROFESSOR  OF  HISTORY  AND  POLITICAL  ECONOMY  IN 
WILLIAMS  COLLEGE 


'  No  task  is  ill  where  Hand  and  Brain 
And  Skill  and  Strength  have  equal  gain, 
And  each  shall  each  in  honor  hold, 
And  simple  manhood  outweigh  gold." 

WHITTIER. 


NEW   YORK 

CHAKLES   SCRIBNER'S   SONS 
1891 


COPYRIGHT,    1890, 
BY  ARTHUR  LATHAM  PERRY. 

BERNARD 


,'  :  ;  •  • 


©etitcatton. 


TO    MY    PERSONAL    FRIEND    OF    LONG    STANDING 

J.    STERLING   MORTON 

OF  NEBRASKA 

A  FRIEND  OF  THE  PEOPLE  ALSO 
FOUNDER  OF  ARBOR  DAY 


887321 


PREFACE. 


IT  is  now  exactly  twenty-five  years  since  was  published  my 
first  book  upon  the  large  topics  at  present  in  hand.  It  was 
but  as  a  bow  drawn  at  a  venture,  and  was  very  properly  enti- 
tled "  Elements  of  Political  Economy."  At  that  time  I  had 
been  teaching  for  about  a  dozen  years  in  this  Institution  the 
closely  cognate  subjects  of  History  and  Political  Economy; 
cognate  indeed,  since  Hermann  Lotze,  a  distinguished  German 
philosopher  of  our  day,  makes  prominent  among  its  only  Jive 
most  general  phases,  the  "industrial"  element  in  all  human 
history;  and  since  Goldwin  Smith,  an  able  English  scholar, 
resolves  the  elements  of  human  progress,  and  thus  of  universal 
history,  into  only  three,  namely,  "the  moral,  the  intellectual, 
and  the  productive." 

During  these  studious  and  observant  years  of  teaching,  I 
had  slowly  come  to  a  settled  conviction  that  I  could  say  some- 
thing of  my  own  and  something  of  consequence  about  Political 
Economy,  especially  at  two  points ;  and  these  two  proved  in 
the  sequel  to  be  more  radical  and  transforming  points  than 
was  even  thought  of  at  the  first.  For  one  thing,  I  had  satis- 
fied myself,  that  the  word  "Wealth,"  as  at  once  a  strangely 
indefinite  and  grossly  misleading  term,  was  worse  than  useless 
in  the  nomenclature  of  the  Science,  and  would  have  to  be 
utterly  dislodged  from  it,  before  a  scientific  content  and  de- 
fensible form  could  by  any  possibility  be  given  to  what  had 
long  been  called  in  all  the  modern  languages  the  "  Science  of 
Wealth."  Accordingly,  so  far  as  has  appeared  in  the  long 
interval  of  time  since  1865,  these  "  Elements  "  were  the  very 
first  attempt  to  undertake  an  orderly  construction  of  Econom- 

vii 


Vlll  PREFACE. 

ics  from  beginning  to  end  without  once  using  or  having  occa- 
sion to  use  the  obnoxious  word.  A  scientific  substitute  for 
it  was  of  course  required,  which,  with  the  help  of  Bastiat,  him- 
self however  still  clinging  to  the  technical  term  "Bichesse," 
was  discerned  and  appropriated  in  the  word  "  Value  " ;  a  good 
word  indeed,  that  can  be  simply  and  perfectly  defined  in  a 
scientific  sense  of  its  own ;  and,  what  is  more  important  still, 
that  precisely  covers  in  that  sense  all  the  three  sorts  of  things 
which  are  ever  bought  and  sold,  the  three  only  Valuables  in 
short,  namely,  material  Commodities,  personal  Services,  com- 
mercial Credits.  It  is  of  course  involved  in  this  simple-looking 
but  far-reaching  change  from  "  Wealth  "  to  "  Value/7  that  Eco- 
nomics become  at  once  arid  throughout  a  science  of  Persons 
buying  and  selling,  and  no  longer  as  before  a  science  of  Things 
howsoever  manipulated  for  and  in  their  market. 

For  another  thing,  before  beginning  to  write  out  the  first 
word  of  that  book,  I  believed  myself  to  have  made  sure,  by 
repeated  and  multiform  inductions,  of  this  deepest  truth  in 
the  whole  Science,  which  was  a  little  after  embodied  (I  hope  I 
may  even  say  embalmed)  in  a  phrase  taking  its  proper  place  in 
the  book  itself, — A  market  for  Products  is  products  in  Market. 
The  fundamental  thus  tersely  expressed  may  be  formulated 
more  at  length  in  this  way:  One  cannot  Sell  without  at  the 
same  instant  and  in  the  same  act  Buying,  nor  Buy  anything 
without  simultaneously  Selling  something  else ;  because  in 
Buying  one  pays  for  what  he  buys,  which  is  Selling,  and  in 
Selling  one  must  take  pay  for  what  is  sold,  which  is  Buying. 
As  these  universal  actions  among  men  are  always  voluntary, 
there  must  be  also  an  universal  motive  leading  up  to  them ; 
this  motive  on  the  part  of  both  parties  to  each  and  every  Sale 
can  be  no  other  than  the  mutual  satisfaction  derivable  to  both ; 
the  inference,  accordingly,  is  easy  and  invincible,  that  govern- 
mental restrictions  on  Sales,  or  prohibitions  of  them,  must 
lessen  the  satisfactions  and  retard  the  progress  of  mankind. 

Organizing  strictly  all  the  matter  of  my  book  along  these 
two  lines  of  Personality  and  Reciprocity,  notwithstanding 


PREFACE.  ix 

much  in  it  that  was  crude  and  more  that  was  redundant  and 
something  that  was  ill-reasoned  and  unsound,  the  book  made 
on  account  of  this  original  mode  of  treatment  an  immediate 
impression  upon  the  public,  particularly  upon  teachers  and 
pupils ;  new  streaks  of  light  could  not  but  be  cast  from  these 
new  points  of  view,  upon  such  topics  especially  as  Land  and 
Money  and  Foreign  Trade ;  and  nothing  is  likely  ever  to  rob 
the  author  of  the  satisfaction,  which  he  is  willing  to  share 
with  the  public,  of  having  contributed  something  of  impor- 
tance both  in  substance  and  in  feature  to  the  permanent  up- 
building of  that  Science,  which  comes  closer,  it  may  be,  to  the 
homes  and  happiness  and  progress  of  the  People,  than  any 
other  science.  And  let  it  be  said  in  passing,  that  there  is 
one  consideration  well-fitted  to  stimulate  and  to  reward  each 
patient  and  competent  scientific  inquirer,  no  matter  what  that 
science  may  be  in  which  he  labors,  namely,  this  :  Any  just 
generalization,  made  and  fortified  inductively,  is  put  thereby 
beyond  hazard  of  essential  change  for  all  time ;  for  this  best 
of  reasons,  that  God  has  constructed  the  World  and  Men  on 
everlasting  lines  of  Order. 

As  successive  editions  of  this  first  book  were  called  for,  and 
as  its  many  defects  were  brought  out  into  the  light  through 
teaching  my  own  classes  from  it  year  after  year,  occasion  was 
taken  to  revise  it  and  amend  it  and  in  large  parts  to  rewrite  it 
again  and  again ;  until,  in  1883,  and  for  the  eighteenth  edition, 
it  was  recast  from  bottom  up  for  wholly  new  plates,  and  a 
riper  title  was  ventured  upon,  —  "  Political  Economy,"  —  in- 
stead of  the  original  more  tentative  "Elements."  Since  then 
have  been  weeded  out  the  slight  typographical  and  other  minute 
errors,  and  the  book  stands  now  in  its  ultimate  shape. 

My  excellent  publishers,  who  have  always  been  keenly  and 
wisely  alive  to  my  interests  as  an  author,  suggested  several 
times  after  the  success  of  the  first  book  was  reasonably  assured, 
that  a  second  and  smaller  one  should  be  written  out,  with  an 
especial  eye  to  the  needs  of  high  schools  and  academies  and 
colleges  for  a  text-book  within  moderate  limits,  yet  soundly 


X  PREFACE. 

based  and  covering  in  full  outline  the  whole  subject.  This  is 
the  origin  of  the  "Introduction  to  Political  Economy,"  first 
published  in  1877,  twelve  years  after  the  other.  Its  success 
as  a  text-book  and  as  a  book  of  reading  for  young  people  has 
already  justified,  and  will  doubtless  continue  to  justify  in  the 
future,  the  forethought  of  its  promoters.  It  has  found  a  place 
in  many  popular  libraries,  and  in  courses  of  prescribed  reading. 
Twice  it  has  been  carefully  corrected  and  somewhat  enlarged, 
and  is  now  in  its  final  form.  In  the  preface  to  the  later  edi- 
tions of  the  "  Introduction  "  may  be  found  the  following  sen- 
tence, which  expresses  a  feeling  not  likely  to  undergo  any 
change  in  the  time  to  come :  —  "I  have  long  been,  and  am 
still,  ambitious  that  these  books  of  mine  may  become  the 
horn-books  of  my  countrymen  in  the  study  of  this  fascinating 
Science." 

Why,  then,  should  I  have  undertaken  of  my  own  motion  a 
new  and  third  book  on  Political  Economy,  and  attempted  to 
mark  the  completion  of  the  third  cycle  of  a  dozen  years  each 
of  teaching  it,  by  offering  to  the  public  the  present  volume  ? 
One  reason  is  implied  in  the  title,  "Principles  of  Political 
Economy"  There  are  three  extended  historical  chapters  in 
the  earlier  book,  occupying  more  than  one-quarter  of  its  entire 
space,  which  were  indeed  novel,  which  cost  me  wide  research 
and  very  great  labor,  and  which  have  also  proven  useful  and 
largely  illustrative  of  almost  every  phase  of  Economics ;  but 
I  wanted  to  leave  behind  me  one  book  of  about  the  same  size 
as  that,  devoted  exclusively  to  the  Principles  of  the  Science, 
and  using  History  only  incidentally  to  illustrate  in  passing 
each  topic  as  it  came  under  review.  For  a  college  text-book 
as  this  is  designed  to  become,  and  for  a  book  of  reading  and 
reference  for  technical  purposes,  it  see'ms  better  that  all  the 
space  should  be  taken  up  by  purely  scientific  discussion  and 
illustration.  This  does  not  mean,  however,  that  great  pains 
have  not  been  taken  in  every  part  to  make  this  book  also 
easily  intelligible,  and  as  readable  and  interesting  as  such 
careful  discussions  can  be  made. 


PREFACE.  XI 

A  second  reason  is,  to  provide  for  myself  a  fresh  text-book 
to  teach  from.  My  mind  has  become  quite  too  thoroughly 
familiarized  with  the  other,  even  down  to  the  very  words,  by 
so  long  a  course  of  instructing  from  it,  for  the  best  results  in 
the  class-room.  Accordingly,  a  new  plan  of  construction  has 
been  adopted.  Instead  of  the  fourteen  chapters  there,  there 
are  bub  seven  chapters  here.  Not  a  page  nor  a  paragraph 
as  such  has  been  copied  from  either  of  the  preceding  books. 
Single  sentences,  and  sometimes  several  of  them  together, 
when  they  exactly  fitted  the  purposes  of  the  new  context, 
have  been  incorporated  here  and  there,  in  what  is  through- 
out both  in  form  and  style  a  new  book,  neither  an  enlarge- 
ment nor  an  abridgment  nor  a  recasting  of  any  other.  I 
anticipate  great  pleasure  in  the  years  immediately  to  come 
from  the  handling  with  my  classes,  who  have  always  been  of 
much  assistance  to  me  from  the  first  in  studying  Political 
Economy,  a  fresh  book  written  expressly  for  them  and  for 
others  like-circumstanced;  in  which  every  principle  is  drawn 
from  the  facts  of  every-day  life  by  way  of  induction,  and  also 
stands  in  vital  touch  with  such  facts  (past  or  present)  by  way 
of  illustration. 

The  third  and  only  other  reason  needful  to  be  mentioned 
here  is,  that  in  recent  years  the  legislation  of  my  country  in 
the  matter  of  cheap  Money  and  of  artificial  restrictions  011 
Trade  has  run  so  directly  counter  to  sound  Economics  in 
their  very  core,  that  I  felt  it  a  debt  due  to  my  countrymen 
to  use  once  more  the  best  and  ripest  results  of  my  life-long 
studies,  in  the  most  cogent  and  persuasive  way  possible  within 
strictly  scientific  limits,  to  help  them  see  and  act  for  them- 
selves in  the  way  of  escape  from  false  counsels  and  impover- 
ishing statutes.  Wantonly  and  enormously  heavy  lies  the 
hand  of  the  national  Government  upon  the  masses  of  the 
people  at  present.  But  the  People  are  sovereign,  and  not 
their  transient  agents  in  the  government ;  and  the  signs 
are  now  cheering  indeed,  that  they  have  not  forgotten  their 
native  word  of  command,  nor  that  government  is  instituted 


xii  PREFACE. 

for  the  sole  benefit  of  the  governed  and  governing  people, 
nor  that  the  greatest  good  of  the  greatest  number  is  the  true 
aim  and  guide  of  Legislation.  I  am  grateful  for  the  proofs 
that  appear  on  every  hand,  that  former  labors  in  these  direc- 
tions and  under  these  motives  have  proven  themselves  to  have 
been  both  opportune  and  effective ;  and  I  am  sanguine  almost 
to  certainty,  that  this  reiterated  effort  undertaken  for  the  sake 
of  my  fellow-citizens  as  a  whole,  will  slowly  bear  abundant 
fruit  also,  as  towards  their  liberty  of  action  as  individuals, 
and  in  their  harmonious  co-operation  together  as  entire  classes 
to  the  end  of  popular  comforts  and  universal  progress. 

A.  L.  PERRY. 

WILLIAMS  COLLEGE, 
November  25,  1890. 


TABLE   OF   CONTENTS. 


CHAPTER   I. 

PAGE 

VALUE 1 


CHAPTER  II. 
MATERIAL  COMMODITIES 80 

CHAPTER  III. 
PERSONAL  SERVICES 181 

CHAPTER  IV. 
COMMERCIAL  CREDITS 271 

CHAPTER   V. 
MONEY 361 

CHAPTER  VI. 
FOREIGN  TRADE 451 

CHAPTER  VII. 
TAXATION  540 


INDEX 587 

xiii 


PRINCIPLES  OF  POLITICAL  ECONOMY. 


CHAPTER  I. 

VALUE. 

THE  first  question  that  confronts  the  beginner  in  this 
science,  and  the  one  also  that  controls  the  whole  scope  of 
his  inquiries  to  the  very  end,  is :  What  is  the  precise  sub- 
ject of  Political  Economy  ?  Within  what  exact  field  do  its 
investigations  lie  ?  There  is  indeed  a  short  and  broad  and 
full  answer  at  hand  to  this  fundamental  and  comprehensive 
question ;  and  yet  it  is  every  way  better  for  all  concerned 
to  reach  this  answer  by  a  route  somewhat  delayed  and  cir- 
cuitous, just  as  it  is  better  in  ascending  a  mountain  summit 
for  the  sake  of  a  strong  and  complete  view  to  circle  up 
leisurely  on  foot  or  on  horseback,  rather  than  to  dash 
straight  up  to  the  top  by  a  cog-wheel  railway  and  take 
all  of  a  sudden  what  might  prove  to  be  a  less  impressive 
or  a  more  confusing  view. 

The  preliminary  questions  are :  What  sort  of  facts  has 
Political  Economy  to  deal  with,  to  inquire  into,  to  classify, 
to  make  a  science  of  ?  Are  these  facts  easily  separable  in 
the  mind  and  in  reality  from  other  kinds  of  facts  perhaps 
liable  to  be  confounded  with  them  ?  Are  they  facts  of 
vast  importance  to  the  welfare  of  mankind  ?  And  are  the 
activities  of  men  everywhere  greatly  and  increasingly 
occupied  with  just  those  things,  with  which  this  science 
has  exclusively  to  do  ?  Let  us  see  if  we  cannot  come  little 

1 


2  PRINCIPLES  ..OF  POLITICAL  ECONOMY. 

by  little  by  a  route  ,of  our  own  f<o  clear  asd  true  answers 
for  all  these  questions. 

If  one  should  take  his  stand  for  an  hour  upon  London 
Bridge,  perhaps  the  busiest  bit  of  street  in  the  world,  and 
cast  his  eyes  around  intelligently  to  see  what  he  can  see, 
and  begin  also  to  classify  the  things  coming  under  his 
vision,  what  might  he  report  to  himself  and  to  others? 
Below  the  bridge  in  what  is  called  the  "  Pool,"  which  was 
dredged  out  for  that  very  purpose  by  the  ancient  Romans, 
there  lie  at  anchor  or  move  coming  and  going  many  mer- 
chant-ships of  all  nations,  carrying  out  and  bringing  in  to 
an  immense  amount  in  the  whole  aggregate  tangible  articles 
of  all  kinds  to  and  from  the  remote  as  well  as  the  near 
nations  of  the  earth.  All  this  movement  of  visible  goods, 
home  and  foreign,  is  in  the  interest  and  under  the  impulse 
of  Buying  and  Selling.  The  foreign  goods  come  in  simply 
to  buy,  that  is,  to  pay  for,  the  domestic  goods  taken  away ; 
and  these  latter  go  out  in  effect  even  if  not  in  appearance 
to  buy,  that  is,  to  pay  for,  the  foreign  goods  coming  in. 
At  the  same  hour  the  bridge  itself  is  covered  with  land- 
vehicles  of  every  sort  moving  in  both  directions,  loaded 
with  salable  articles  of  every  description ;  artisans  of  every 
name  are  coming  and  going ;  merchants  of  many  nation- 
alities step  within  the  field  of  view  ;  and  porters  and  ser- 
vants and  errand-boys  are  running  to  and  fro,  all  in  some 
direct  relation  to  the  sale  or  purchase  of  those  visible  and 
tangible  things  called  in  Political  Economy  Commodities. 
Moreover,  vast  warehouses  built  in  the  sole  interest  of  trade 
on  both  sides  the  river  above  and  below  the  bridge,  built  to 
receive  and  to  store  for  a  time  till  their  ultimate  consumers 
are  found,  some  of  these  thousand  things  bought  and  sold 
among  men,  lift  their  roofs  towards  heaven  in  plain  sight. 
Doubtless  some  few  persons,  like  our  observer  himself,  may 
be  on  the  spot  for  pleasure  or  instruction,  but  for  the  most 


VALUE.  8 

part,  all  that  he  can  see,  the  persons,  the  things,  the  build- 
ings, even  the  bridge  itself,  are  where  they  are  in  the  inter- 
est of  Sales  of  some  sort,  mostly  of  Commodities.  What 
is  thus  true  of  a  single  point  in  London  is  true  in  a  degree 
of  every  other  part  of  London,  of  every  part  of  Paris  and 
of  Berlin,  and  in  its  measure  of  every  other  city  and  village 
and  hamlet  in  the  whole  world.  Wherever  there  is  a  street 
there  is  some  exchange  of  commodities  upon  it,  and  where- 
ever  there  is  a  market  there  are  buyers  and  sellers  of 
commodities. 

If  the  curiosity  of  our  supposed  observer  be  whetted  by 
what  he  saw  on  London  Bridge,  and  if  the  natural  impulse 
to  generalize  from  particulars  be  deepened  in  his  mind,  he 
may  perhaps  on  his  return  to  America  take  an  opportunity 
to  see  what  he  can  see  and  learn  what  he  can  learn  within 
and  around  one  of  the  mammoth  cotton  mills  in  Lowell  or 
Fall  River  or  Cohoes.  Should  he  take  his  stand  for  this 
purpose  at  one  of  these  points,  say  Lowell,  he  will  be  struck 
at  once  by  some  of  the  differences  between  what  he  saw  on 
the  bridge  and  what  he  now  sees  in  the  mill.  He  will 
indeed  see  as  before  some  commodities  brought  in  and 
carried  out,  such  as  the  raw  cotton  and  new  machinery  and 
the  finished  product  ready  for  sale,  but  in  general  no  other 
commodities  than  the  cotton  in  its  various  stages  of  manu- 
facture, and  those  like  the  machinery  and  means  of  trans- 
portation directly  connected  with  transforming  the  cotton 
into  cloth  and  taking  it  to  market. 

But  he  sees  a  host  of  persons  both  within  and  without 
the  mill,  all  busy  here  and  there,  and  all  evidently  bound 
to  the  establishment  by  a  strong  unseen  tie  of  some  sort ; 
he  sees  varying  degrees  of  authority  and  subordination 
in  these  persons  from  the  Treasurer,  the  apparent  head 
of  the  manufactory,  down  to  the  teamsters  in  the  yard  and 
the  common  laborers  within  and  without ;  he  will  not  find 


4  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  owners  of  the  property  present  in  any  capacity,  for 
they  are  scattered  capitalists  of  Boston  and  elsewhere,  who 
have  combined  through  an  act  of  incorporation  their  dis- 
tinct capitals  into  a  "  Company  "  for  manufacturing  cot- 
ton ;  besides  their  Treasurer  present,  whose  act  is  their  act 
and  whose  contracts  their  contracts,  he  will  see  an  Agent 
also  who  acts  under  the  Treasurer  and  directly  upon  the 
Overseers  and  their  assistants  in  the  spinning  and  weaving 
and  coloring  and  finishing  rooms,  and  under  these  Opera- 
tives of  every  grade  as  skilled  and  unskilled ;  and  lastly 
he  will  observe,  that  the  direct  representatives  of  the  own- 
ers and  all  other  persons  present  from  highest  to  lowest 
are  conspiring  with  a  will  towards  the  common  end  of  get- 
ting the  cotton  cloth  all  made  and  marketed. 

What  is  it  that  binds  all  these  persons  together?  A  lit- 
tle tarrying  in  the  Treasurer's  office  will  answer  this  ques- 
tion for  our  observer  and  for  us.  He  will  find  it  to  be  the 
second  kind  of  Buying  and  Selling.  At  stated  times  the 
Treasurer  pays  the  salary  of  the  Agent,  and  his  own.  He 
pays  the  wages  of  the  Overseers  and  the  wages  of  all  the 
Operatives  and  Laborers,  —  men  and  women  and  children. 
Here  he  finds  a  buying  and  selling  on  a  great  scale  not  of 
material  commodities  as  before,  but  of  personal  services  of 
all  the  various  kinds.  Every  man  and  woman  and  child 
connected  with  the  factory  and  doing  its  work  sells  an 
intangible  personal  service  to  the  "  Company  "  and  takes 
his  pay  therefor,  which  last  is  a  simple  buying  on  the  part 
of  the  unseen  employers.  Here,  then,  in  this  mill  is  a  sin- 
gle specimen  of  this  buying  and  selling  of  personal  ser- 
vices, which  is  going  on  to  an  immense  extent  and  in  every 
possible  direction  in  each  civilized  country  of  the  world, 
and  everywhere  to  an  immensely  increased  volume  year  by 
year.  Clergymen  and  lawyers  and  physicians  and  teach- 
ers and  legislators  and  judges  and  musicians  and  actors 


VALUE.  5 

and  artisans  of  every  name  and  laborers  of  every  grade  sell 
their  intangible  services  to  Society,  and  take  their  pay 
back  at  the  market-rate.  The  aggregate  value  of  all  these 
services  sold  in  every  advanced  country  is  probably  greater 
than  the  aggregate  value  of  the  tangible  commodities  sold 
there.  At  any  rate,  both  classes  alike,  commodities  and 
services,  are  bought  and  sold  under  substantially  the  same 
economic  principles. 

The  inductive  appetite  in  intelligent  persons,  that  is  to 
say,  their  desire  to  classify  facts  and  to  generalize  from 
particulars,  almost  always  grows  by  what  it  feeds  on  ;  and 
our  supposed  observer  will  scarcely  rest  contented  until  he 
has  taken  up  at  least  one  more  stand-point,  from  which  to 
observe  men's  Buying  and  Selling.  Suppose  now  he  enter 
for  this  purpose  on  any  business-day  morning  the  New 
York  Clearing-House.  He  will  see  about  125  persons 
present,  nearly  one  half  of  these  bank  clerks  sitting  behind 
desks,  and  the  other  half  standing  before  these  desks  or 
moving  in  cue  from  one  to  the  next.  The  room  is  per- 
fectly still.  Not  a  word  is  spoken.  The  Manager  of  the 
Clearing  with  his  assistant  sits  or  stands  on  a  raised  plat- 
form at  one  end  of  the  room,  and  gives  the  signal  to  begin 
the  Exchange.  No  commodities  of  any  name  or  nature 
are  within  the  field  of  view.  The  manager  indeed  and  his 
assistant  and  two  clerks  of  the  establishment  who  sit  near 
him  are  in  receipt  of  salaries  for  their  personal  services, 
and  all  the  other  clerks  present  receive  wages  for  their 
services  from  their  respective  banks,  but  the  exchange 
about  to  commence  is  no  sale  of  personal  services  any 
more  than  it  is  a  sale  of  tangible  commodities.  It  is  how- 
ever a  striking  instance  of  the  buying  and  selling  of  some 
valuables  of  the  third  and  final  class  of  valuable  things. 

At  a  given  signal  from  the  manager  the  (say)  60  bank 
messengers,  each  standing  in  front  of  the  desk  of  his  own 


6  PRINCIPLES    OF   POLITICAL   ECONOMY. 

bank  and  each  having  in  hand  before  him  59  small  parcels 
of  papers,  the  parcels  arranged  in  the  same  definite  order 
as  the  desks  around  the  room,  step  forward  to  the  next 
desk  and  deliver  each  his  parcel  to  the  clerk  sitting  behind 
it,  and  so  on  till  the  circuit  of  the  room  is  made.  It  takes 
but  ten  minutes.  Each  parcel  is  made  up  of  cheques  or 
credit-claims,  the  property  of  the  bank  that  brings  it  and 
the  debts  of  the  bank  to  which  it  is  delivered.  Accord- 
ingly each  bank  of  the  circle  receives  through  its  sitting 
clerk  its  own  debits  to  all  the  rest  of  the  banks,  and  deliv- 
ers to  all  through  its  standing  messenger  its  own  credits  as 
off-set.  In  other  words,  each  bank  buys  of  the  rest  what 
it  owes  to  each  with  what  each  owes  to  it.  It  is  at  bottom 
a  mutual  buying  and  selling  of  debts.  There  is  of  course 
a  daily  balance  on  one  side  or  the  other  between  every  two 
of  these  banks,  which  must  be  settled  in  money,  because 
it  would  never  happen  in  practice  that  each  should  owe 
the  other  precisely  the  same  sum  on  any  one  day;  but 
substantially  and  almost  exclusively  the  exchange  at  the 
Clearing-House  is  a  simple  trade  in  credit-claims.  Each 
bank  pays  its  debts  by  credits.  A  merchant  is  a  dealer  in 
commodities,  a  laborer  is  a  dealer  in  services,  and  a  banker 
is  a  dealer  in  credits.  Each  of  the  three  is  a  buyer  and 
seller  alike,  and  the  difference  is  only  in  the  kind  of  valu- 
ables specially  dealt  in  by  each.  In  all  cases  alike,  how- 
ever, there  is  no  buying  without  selling  and  no  selling 
without  buying ;  because,  when  one  buys  he  must  always 
pay  for  what  he  buys  and  that  is  selling,  and  when  one 
sells  he  must  always  take  his  pay  for  what  he  sells  and 
that  is  buying.  This  is  just  as  true  when  one  credit  is 
bought  or  sold  against  a  commodity  or  a  service,  and  when 
two  or  more  credits  are  bought  and  sold  as  against  each 
other,  as  it  is  when  two  commodities  or  two  services  are 
exchanged  one  for  the  other. 


VALUE.  7 

But  the  Clearing-House  is  not  by  any  means  the  only 
place  where  credits  or  debts  (they  are  the  same  thing)  are 
bought  and  sold.  Every  bank  is  such  a  place.  Every 
broker's  office  is  such  a  place.  Every  place  is  an  estab- 
lishment of  the  same  kind  where  commercial  rights,  that 
is,  claims  to  be  realized  in  future  time  and  for  which  a 
consideration  is  paid,  are  offered  for  sale  and  sold.  The 
amount  of  transactions  in  Credits  in  every  commercial 
country  undoubtedly  surpasses  the  amount  in  Commodi- 
ties or  that  in  Services. 

Now  our  supposed  observer  and  classifier,  having  noted 
on  London  Bridge  the  sale  of  material  commodities,  and  in 
the  Lowell  Mill  the  sale  of  personal  services,  and  within 
the  New  York  Clearing-House  the  sale  of  credit-claims, 
has  seen  in  substance  everything  that  ever  was  or  ever 
will  be  exhibited  in  the  world  of  trade.  He  may  rest. 
There  is  no  other  class  of  salable  things  than  these  three. 
Keen  eyes  and  minds  skilled  in  induction  have  been  busy 
for  two  millenniums  and  a  half  more  or  less  to  find  another 
class  of  things  bought  and  sold  among  men,  and  have  not 
yet  found  it  or  any  trace  of  it.  This  work  has  been  per- 
fectly and  scientifically  done.  The  generalization  is  com- 
pleted for  all  time. 

The  genus,  then,  with  which  Political  Economy  deals 
from  beginning  to  end,  has  been  discovered,  can  be  de- 
scribed, and  is  easily  and  completely  separable  for  its  own 
purposes  of  science  from  all  other  kinds  and  classes  and 
genera  of  things,  namely,  Salable  things  or  (what  means 
precisely  the  same)  Valuable  things  or  (what  is  exactly 
equivalent)  Exchangeable  things.  In  other  words,  the  sole 
and  single  class  of  things,  with  which  the  Science  of 
Political  Economy  has  to  do,  is  Valuables,  whose  origin 
and  nature  and  extent  and  importance  it  is  the  purpose  of 
the  present  chapter  to  unfold.  We  have  fully  seen  already 


8  PRINCIPLES   OF   POLITICAL  ECONOMY. 

that  this  Genus,  Valuables,  is  sub-divided  into  three 
species,  and  three  only,  namely,  Commodities,  Services, 
Credits.  A  little  table  here  may  help  at  once  the  eye  and 
the  mind :  — 

ECONOMICS. 
The  Genus  Valuables 

C  Commodities 
The  /Species  -j  Services 

(  Credits 

If  only  these  three  species  of  things  are  ever  bought 
and  sold,  then  it  certainly  follows  that  only  six  kinds  of 
commercial  exchanges  are  possible  to  be  found  in  the 
world,  namely  these :  — 

1.  A  commodity  for  a  commodity. 

2.  A  commodity  for  a  personal  service. 

3.  A  commodity  for  a  credit-claim. 

4.  A  personal  service  for  another  service. 

5.  A  personal  service  for  a  credit-claim. 

6.  One  credit-claim  for  another. 

Though  the  kinds  of  possible  exchanges  are  thus  very 
few,  the  exchanges  themselves  in  one  or  other  of  these  six 
forms  and  in  all  of  them  are  innumerable  on  every  busi- 
ness day  in  every  civilized  country  of  the  globe.  And 
this  point  is  to  be  particularly  noted,  that  while  buying 
and  selling  in  these  forms  has  been  going  on  everywhere 
since  the  dawn  of  authentic  History,  it  has  gone  on  all  the 
while  in  ever-increasing  volume,  it  is  increasing  now  more 
rapidly  and  variously  than  ever,  and  moreover  all  signs 
foretell  that  it  will  play  a  larger  and  still  larger  part  in 
the  affairs  of  men  and  nations  as  this  old  world  gains  in 
age  and  unity. 

Damascus  is  one  of  the  very  oldest  cities  of  the  world, 
and  its  very  name  means  a  " seat  of  trade"  We  are  told 


VALUE.  9 

in  the  Scriptures,  that  Abraham  about  2000  years  before 
Christ  went  up  out  of  Egypt  "  very  rich  in  cattle,  in  silver, 
and  in  gold,"  and  the  only  possible  way  he  could  have 
acquired  these  possessions  was  by  buying  and  selling.  He 
afterwards  purchased  the  cave  and  the  field  in  Hebron  for 
a  family  bu;ial-place,  and  "  weighed  unto  Ephron  the  silver 
which  he  had  named  in  the  audience  of  the  sons  of  Heth, 
four  hundred  shekels  of  silver,  current  money  with  the 
merchant."  We  may  notice  here,  that  there  were  then 
"merchants"  as  a  class,  that  silver  by  weight  passed  as 
"  money  "  from  hand  to  hand,  and  that  in  the  lack  of 
written  deeds  to  land,  as  we  have  them,  sales  were  "  made 
sure  "  before  the  faces  of  living  men,  who  would  tell  the 
truth  and  pass  on  the  word.  Abraham  indeed  seems  to 
have  given  the  pitch  for  the  song  of  trade  sung  by  his 
descendants,  the  Jews,  from  that  day  to  this ;  for  Jacob, 
his  grandson,  was  a  skilled  trafficker,  not  to  say  a  secret 
trickster,  in  his  bargains ;  and  wherever  in  the  Old  World 
or  the  New  the  Jews  have  been,  there  have  been  in  fact 
and  in  fame  busy  buyers  and  sellers. 

But  the  Jews  have  had  no  special  privileges  in  the 
realm  of  trade ;  on  the  contrary,  they  have  always  been 
under  special  disabilities  both  legal  and  social.  Even  in 
England,  the  most  liberal  country  in  Europe,  they  were 
exiled  for  long  periods,  maltreated  at  all  points  of  contact 
with  other  people,  more  or  less  put  under  the  ban  of  the 
Common  and  the  Statute  law,  often  outrageously  taxed  on 
their  goods  and  persons,  and  studiously  kept  out  of  the 
paths  of  highest  public  employment  even  down  to  a  time 
within  the  memory  of  living  men.1  Yet  so  natural  is  the 
impulse  to  trade,  so  universally  diffused,  so  imperative 
also  if  progress  is  in  any  direction  to  be  attained,  that  the 
English  and  all  other  peoples  were  as  glad  to  borrow  money, 
1  Green's  Short  History  of  the  English  People,  p.  691. 


10  PRINCIPLES   OF   POLITICAL  ECONOMY. 

that  is,  buy  the  use  of  it,  of  the  persecuted  Jews,  as  the 
latter  were  to  get  money  by  buying  and  selling  other 
things,  and  then  to  loan  it,  that  is,  sell  the  use  of  it,  under 
the  best  securities  (never  very  good)  for  its  return  with 
interest,  that  they  could  obtain.  Happily,  the  mutual 
gains  that  always  wait  on  the  Exchanges  even  when  their 
conditions  are  curtailed,  of  course  attended  the  mutilated 
exchanges  between  Jews  and  Christians :  otherwise,  they 
would  not  continue  to  take  place. 

Christianity,  however,  as  the  perfected  Judaism,  gradu- 
ally brought  in  the  better  conditions,  the  higher  impulses, 
and  the  more  certain  rewards,  of  Trade,  all  which,  we 
may  be  sure,  were  designed  in  the  divine  Plan  of  the 
world.  What  is  called  the  Progress  of  Civilization  has 
been  marked  and  conditioned  at  every  step  by  an  exten- 
sion of  the  opportunities,  a  greater  facility  in  the  use  of 
the  means,  a  more  eager  searching  for  proper  expedients, 
and  a  higher  certainty  in  the  securing  of  the  returns,  of 
mutual  exchanges  among  men.  There  have  been  indeed, 
and  there  still  are,  vast  obstacles  lying  across  the  pathway 
of  this  Progress  in  the  unawakened  desires  and  reluctant 
industry  and  short-sighted  selfishness  of  individuals,  as 
well  as  in  the  ignorant  prejudices  and  mistaken  legislation 
of  nations ;  but  all  the  while  Christianity  has  been  indi- 
rectly tugging  away  at  these  obstacles,  and  Civilization  has 
been  able  to  rejoice  over  the  partial  or  complete  removal 
of  some  of  them;  while  also  Christianity  directly  works 
out  in  human  character  those  chief  qualities,  on  which  the 
highest  success  of  commercial  intercourse  among  men  will 
always  depend,  namely,  Foresight,  Diligence,  Integrity, 
and  mutual  Trust ;  so  that,  what  we  call  Civilization  is  to 
a  large  extent  only  the  result  of  a  better  development  of 
these  human  qualities  in  domestic  and  foreign  commerce. 

Contrary  to  a  common  conception  in  the  premises,  the 


VALUE.  11 

sacred  books  of  both  Jews  and  Christians  display  no  bias 
at  all  against  buying  and  selling,  but  rather  extol  such 
action  as  praiseworthy,  and  also  those  qualities  of  mind 
and  habits  of  life  that  lead  up  to  it  and  tend  too  to  in- 
crease its  amount,  and  they  constantly  illustrate  by  means 
of  language  derived  from  traffic  the  higher  truths  and  more 
spiritual  life,  which  are  the  main  object  of  these  inspired 
writers.  It  is  indeed  true  that  the  chosen  people  of  God 
were  forbidden  to  take  Usury  of  each  other,  though  they 
were  permitted  to  take  it  freely  of  strangers,  and  that 
they  were  forbidden  to  buy  horses  and  other  products  out 
of  Egypt,  for  fear  they  would  be  religiously  corrupted  by 
such  commercial  intercourse  with  idolaters ;  but  there  is 
nothing  of  this  sort  in  the  law  of  Moses  that  cannot  be 
easily  explained  from  the  grand  purpose  to  found  an  agri- 
cultural commonwealth  for  religious  ends,  in  which  com- 
monwealth no  family  could  permanently  alienate  its  land, 
and  in  which  it  was  a  great  object  to  preserve  the  indepen- 
dence and  equality  of  the  tribes  and  families.  Through- 
out the  Old  Testament  there  is  no  word  or  precept  that 
implies  that  trade  in  itself  is  not  helpful  and  wholesome ; 
there  were  sharp  and  effective  provisions  for  the  recovery 
of  debts ;  there  were  any  number  of  exhortations  to  dili- 
gence in  business,  such  as,  "  In  the  morning  sow  thy  seed, 
and  at  evening  withhold  not  thy  hand" ;  King  Solomon 
himself  made  a  gigantic  exchange  in  preparation  for  the 
temple  with  King  Hiram  of  Tyre,  by  which  the  cedars  of 
Lebanon  were  to  be  paid  for  by  the  grain  and  oil  of  the 
agricultural  kingdom ;  chapter  xxvii  of  the  prophet  Ezekiel 
is  a  graphic  description  of  the  commerce  of  the  ancient 
world  as  it  centered  in  the  market  of  Tyre,  a  description 
carried  out  into  detail  both  as  to  the  nations  that  fre- 
quented that  market  and  as  to  the  products  that  were 
exchanged  in  it,  —  "  silver,  iron,  tin,  lead,  persons  of  men, 


12  PRINCIPLES   OF  POLITICAL  ECONOMY. 

vessels  of  brass,  horses,  horsemen,  mules,  horns  of  ivory, 
ebony-wood,  carbuncles,  purple  work,  fine  linen,  corals,  rubies, 
wheat,  pastry,  syrup,  oil,  balm,  wine  of  Helbon,  white  wool, 
thread,  wrought  iron,  cassia,  sweet  reed,  cloth,  lambs,  rams, 
goats,  precious  spices,  precious  stones,  splendid  apparel,  man- 
tles of  blue,  embroidered  work,  chests  of  damask,  and  gold  "; 
and  chapter  xxxi  of  Proverbs  describes  the  model  house- 
wife in  terms  like  these,  — 

"  The  heart  of  her  husband  trusteth  in  her, 
And  he  is  in  no  want  of  gain. 
She  seeketh  wool  and  flax, 
And  worketh  willingly  with  her  hands. 
She  is  like  the  merchants'  ships; 
She  bringeth  her  food  from  afar. 
She  riseth  while  it  is  yet  night, 
And  giveth  food  to  her  family, 
And  a  task  to  her  maidens. 
She  layeth  a  plan  for  a  field  and  buyeth  it ; 
With  the  fruit  of  her  hands  she  planteth  a  vineyard. 
She  perceiveth  how  pleasant  is  her  gain, 
And  her  lamp  is  not  extinguished  in  the  night. 
She  putteth  forth  her  hands  to  the  distaff", 
And  her  hands  take  hold  of  the  spindle. 
She  maketh  for  herself  coverlets ; 
Her  clothing  is  of  fine  linen  and  purple. 
She  maketh  linen  garments  and  selleth  them, 
And  delivereth  girdles  to  the  merchants." 

Still  more  explicit  and  instructive  are  the  words  and 
spirit  of  the  New  Testament.  There  cannot  be  the  least 
doubt  that  the  whole  influence  of  Christianity  is  favorable 
to  the  freest  commercial  exchanges  at  home  and  abroad, 
because  these  depend  largely  on  mutual  confidence  between 
man  and  man,  of  which  confidence  Christianity  is  the 
greatest  promoter.  It  may  be  conceded  at  once  that  our 
Lord  "  overthrew  the  tables  of  the  money-changers  and  the 
seats  of  them  that  sold  doves  "  within  the  sacred  precincts 


VALUE.  13 

of  the  temple,  but  this,  not  because  it  is  wrong  to  change 
money  or  sell  doves,  but  because  that  was  not  the  place 
for  such  merchandising ;  so  He  himself  explained  his  own 
action  in  the  sequel ;  provincial  worshippers  coming  up  to 
Jerusalem  must  needs  have  their  coins  changed  into  the 
money  of  the  Capital,  and  must  needs  buy  somewhere  the 
animal  victims  for  sacrifice ;  but  the  whip  of  small  cords 
had  significance  only  as  to  the  place,  a'nd  not  at  all  as  to 
the  propriety,  of  such  trading. 

One  of  our  Lord's  parables,  the  parable  of  the  Talents, 
sets  forth  in  several  striking  lights  the  privilege  and  duty 
and  reward  of  diligent  trading.  "  Then  he  that  had  re- 
ceived the  jive  talents  went  and  traded  with  the  same,  and 
made  them  other  five  talents"  And  when  this  servant  came 
to  the  reckoning,  and  brought  as  the  result  of  his  free  and 
busy  trafBc  '''•five  talents  more,"  the  prompt  and  hearty 
approval  of  his  lord  —  "  well  done,  thou  good  and  faithful 
servant "  —  becomes  the  testimony  of  the  New  Testament 
to  the  merit  and  the  profit  and  the  benefit  of  a  vigorous 
buying  and  selling.  For  this  servant  could  not  have  been 
authoritatively  pronounced  good  and  faithful  if  the  results 
of  his  action  commended  had  been  in  any  way  prejudicial 
to  others.  The  truth  is,  as  we  shall  abundantly  see  by  and 
by  with  the  reasons  of  it,  that  any  man  who  buys  and  sells 
under  the  free  and  natural  conditions  of  trade,  benefits  the 
man  he  trades  with  just  as  much  as  he  benefits  himself. 
But  the  parable  has  a  still  stronger  word  in  favor  of 
exchanges.  There  was  another  servant  also  entrusted 
with  capital  by  his  lord  at  the  same  time,  when  the  latter 
was  about  to  travel  "into  afar  country."  We  are  expressly 
told  that  distribution  was  made  "  to  every  man  according  to 
his  several  ability,"  and  thus  this  servant  was  only  entrusted 
with  a  single  talent,  the  size  of  the  capital  given  to  him 
being  in  just  proportion  to  the  size  of  the  man,  —  the 


14  PRINCIPLES    OF    POLITICAL   ECONOMY. 

smallest  share  falling  of  course  to  the  smallest  man.  But 
he  had  the  same  opportunity  as  the  two  others.  The  world 
was  open  to  him.  Capital  was  in  demand,  if  not  in  those 
parts  then  in  some  other,  to  which,  like  his  lord,  he  might 
straightway  take  his  journey.  But  when  his  time  of  reck- 
oning came,  and  he  had  nothing  to  show  for  the  use  of  his 
capital,  he  upbraided  his  lord  as  a  hard  man  for  expecting 
any  increase,  and  brought  out  his  bare  talent  wrapped  in 
a  napkin,  saying,  "  I  was  afraid,  and  I  went  and  hid  thy  tal- 
ent in  the  earth"  His  wise  lord  at  once  denounced  this 
servant  as  " wicked  and  slothful"  insisted  that  his  money 
ought  to  have  been  "put  to  the  exchangers"  and  said  finally 
in  a  just  anger  "  cast  ye  the  unprofitable  servant  into  outer 
darkness" 

It  is  moreover  in  incidental  passages  of  the  Scriptures, 
in  which  the  methods  of  business  are  commended  to  the 
searchers  after  higher  things,  that  we  see  their  high  esti- 
mate of  those  methods  and  gains.  "  Buy  the  truth,  and  sell 
it  not ;  buy  wisdom  and  understanding"  (Prov.  xxiii,  23). 
"Buying  up  for  yourselves  opportunities  "  (Col.  iv,  5).  "I 
counsel  thee  ta  buy  of  me  gold  refined  by  fire,  that  thou  may- 
est  be  rich  ;  and  white  garments,  that  thou  mayest  be  clothed  ; 
and  eye-salve  to  anoint  thine  eyes,  that  thou  mayest  see" 
(Rev.  iii,  18).-  "But  rather  let  him  labor,  working  with  his 
hands  at  that  which  is  good,  that  he  may  have  to  give  to  him 
that  is  in  need"  (Eph.  iv,  28).  "  But  if  any  one  provideth 
not  for  his  own,  and  especially  for  those  of  his  own  house, 
he  hath  denied  the  faith,  and  is  worse  than  an  unbeliever  " 
(1  Tim.  v,  8). 

Now,  the  universal  test  and  proof  of  any  truth  is  its 
harmony  with  some  other  truths.  Does  an  alleged  truth 
fall  in  with  and  fill  out  well  some  other  demonstrated  and 
accepted  proposition,  or  a  number  of  such  other  prop- 
ositions ?  If  so,  then  that  truth  is  proved.  Human  reason 


VALUE.  15 

can  no  further  go.  The  mind  rests  with  relish  and  content 
in  a  new  acquisition.  To  apply  this  to  the  case  in  hand, 
—  if  men  were  designed  of  their  Maker  to  buy  and  sell  to 
their  own  mutual  benefit  and  advancement,  if  mankind 
have  always  been  buying  and  selling  as  towards  that  end 
and  with  that  obvious  result,  and  if  the  Future  promises  to 
increase  and  reduplicate  the  buying  and  selling  of  the 
Present  in  every  direction  without  end,  and  all  in  the 
interest  of  a  broad  civilization  and  a  true  and  lasting 
progress  ;  and  if,  in  harmony  with  these  truths,  the  written 
revelation  of  God  in  every  part  of  it  assumes  that  buying 
and  selling  in  its  inmost  substance  and  essential  forms  be 
good  and  righteous  and  progressive,  and  suitable  in  all  its 
ends  and  methods  to  illustrate  and  enforce  ends  and  meth- 
ods in  the  higher  kingdom  of  spiritual  and  eternal  Life ;  — 
then  these  coordinate  truths  will  logically  and  certainly 
follow,  (1)  that  Trade  is  natural  and  essential  and  ben- 
eficial to  mankind ;  (2)  that  it  constitutes  in  an  important 
sense  a  realm  of  human  thought  and  action  by  itself,  sep- 
arate from  the  neighboring  realm  of  Giving,  and  equally 
from  the  hostile  realm  of  Stealing ;  and  (3)  that  a  careful 
analysis  of  what  buying  and  selling  in  its  own  peculiar 
nature  is,  a  thorough  ascertainment  and  a  consequent 
clear  statement  of  its  fundamental  laws,  and  a  faithful 
exposure  of  what  in  individual  selfishness  and  in  subtle  or 
open  Legislation  makes  against  these  laws,  must  be  of  large 
consequence  to  the  welfare  of  mankind. 

Accordingly,  let  us  now  attempt  such  Analysis  and 
Ascertainment  and  Exposure.  This  is  precisely  the  task, 
that  lies  before  us  in  this  book  —  just  this,  and  nothing 
more.  The  term,  "  Political  Economy,"  has  long  been  and 
is  still  an  elastic  title  over  the  zealous  work  of  many  men 
in  many  lands;  but  in  the  hands  of  the  present  writer 
during  a  life  now  no  longer  short,  the  term  has  always  had 


16  PRINCIPLES  OF  POLITICAL  ECONOMY. 

a  definite  meaning,  the  work  has  covered  an  easily  circum- 
scribed field,  and  so  the  present  undertaking  concerns  only 
Buying  and  Selling  and  what  is  essentially  involved  in 
that.  This  gives  scope  and  verge  enough  for  the  studies 
of  a  life-time.  This  has  the  advantage  of  a  complete 
sphere  of  its  own.  Terms  may  thus  be  made  as  definite  as 
the  nature  of  language  will  ever  allow;  definitions  will 
thus  cover  things  of  one  kind  only;  and  generalizations, 
although  they  may  be  delicate  and  difficult,  will  deal  with 
no  incongruous  and  obstinate  material. 

1.  The  grandfather  of  the  writer,  an  illiterate  but  long- 
headed farmer,  was  able  to  give  good  points  to  his  three 
college-bred  sons,  by  insisting  that  they  look  "into  the 
natur  orit"  What,  then,  are  the  ultimate  elements  of 
Buying  and  Selling?  What  are  the  invariable  conditions 
that  precede,  accompany,  and  follow,  any  and  every  act  of 
Trade  ?  Of  course  we  are  investigating  now  and  through- 
out this  treatise  the  deliberative  acts  of  reasonably  intel- 
ligent human  beings,  in  one  great  department  of  their 
common  foresight  and  rational  action.  We  have  conse- 
quently nothing  to  do  here  with  Fraud  or  Theft  or  Mania  or 
Gift.  Acts  put  forth  under  the  impulse  of  these  are  direct 
opposites  of,  or  at  best  antagonistic  to,  acts  of  Trade. 
They  tend  to  kill  trade,  and  therefore  they  are  no  part  of 
trade.  These,  then,  and  such  as  these,  aside,  we  will  now 
analyze  a  single  Act  of  Exchange  at  one  time  and  place,  — 
which  will  serve  in  substance  for  all  acts  of  exchange  in 
all  times  and  places,  and  just  find  out  for  ourselves  what 
are  the  Fundamentals  and  Essentials  of  that  matter,  with 
which  alone  we  have  to  do  in  this  science  of  Political 
Economy. 

Incidental  reference  was  had  a  little  way  back  to  an 
Exchange  once  made  between  King  Solomon  of  Jerusalem 
and  King  Hiram  of  Tyre.  Let  that  be  our  typical  in- 


VALUE.  17 

stance,  (a)  There  were  two  persons,  Solomon  and  Hiram. 
Those  two,  and  no  more,  stood  face  to  face,  as  it  were,  to 
make  a  commercial  bargain.  They  made  it,  and  it  was 
afterwards  executed.  The  execution  indeed  concerned  a 
great  many  persons  on  both  sides,  and  occupied  a  long 
period  of  time ;  but  the  bargain  itself,  the  trade,  the  ex- 
change, the  covenant,  concerned  only  two  persons,  and 
occupied  but  a  moment  of  time.  It  made  no  difference 
with  the  bargain  as  such,  with  the  binding  nature  of  it, 
with  the  terms  of  it,  with  the  mutual  gains  of  it,  that  each 
person  represented  a  host  of  others,  subordinates  and  sub- 
jects, who  would  have  to  cooperate  in  the  carrying  of  it 
out,  because  each  king  had  the  right  to  speak  for  his  sub- 
jects as  well  as  for  himself,  for  commercial  purposes  each 
was  an  agent  as  well  as  a  monarch,  the  word  of  each  con- 
cluded the  consent  and  the  action  of  others  as  well  as  his 
own.  Nor  did  it  make  any,  the  least,  difference  with  this 
exchange  or  the  advantages  of  it,  that  each  party  to  it 
belonged  to,  was  even  the  head  of,  independent  and  some- 
times hostile  Peoples,  Commerce  is  one  thing,  and  nation- 
ality a  totally  different  thing.  The  present  point  is,  in  the 
words  of  the  old  proverb,  —  "  It  takes  two  to  make  a  bar- 
gain." And  it  takes  only  two  to  make  a  bargain.  When 
corporations  and  even  nations  speak  in  trade,  they  speak, 
and  speak  finally,  through  one  accredited  agent.  We 
reach,  then,  as  the  first  bit  of  our  analysis  of  Trade,  the 
fact,  that  there  are  always  two  parties  to  it,  "  the  party  of 
the  first  part  and  the  party  of  the  second  part." 

(b)  There  were  two  desires,  Solomon's  desire  for  cedar- 
timbers  to  build  the  temple  with,  and  Hiram's  desire  for 
wheat  and  oil  with  which  to  support  the  people  of  his  ster- 
ile kingdom.  "  So  Hiram  gave  Solomon  cedar-trees  and  fir- 
trees  according  to  all  his  desire :  and  Solomon  gave  Hiram 
twenty  thousand  measures  of  wheat  for  food  to  his  household, 


18  PRINCIPLES   OF   POLITICAL   ECONOMY. 

and  twenty  measures  of  pure  oil"  The  desire  of  each  party 
was  personal  and  peculiar,  known  at  first  only  to  himself, 
but  upon  occasion  became  directed  towards  something  in 
the  possession  of  the  other,  and  each  at  length  became 
aware  of  the  desire  of  the  other,  and  also  of  his  own  abil- 
ity to  satisfy  the  want  of  the  other.  If  Solomon  could 
have  satisfied  his  desire  for  timber  by  his  own  or  his  sub- 
jects' efforts  directly,  this  trade  would  never  have  taken 
place ;  if  Hiram  or  his  subjects  could  have  gotten  the 
wheat  and  oil  directly  out  of  their  narrow  and  sandy  strips 
of  sea-coast,  this  trade  would  not  have  taken  place ;  and 
so  there  must  be  in  every  case  of  trade  not  only  two  de- 
sires each  springing  from  a  separate  person,  but  also  each 
person  must  have  in  his  possession  something  fitted  to 
gratify  the  desire  of  the  other  person,  and  each  be  willing 
to  yield  that  something  into  the  possession  of  the  other  for 
the  sake  of  receiving  from  him  that  which  will  satisfy  his 
own  desire,  and  so  both  desires  be  satisfied  indirectly. 

Here  is  the  deep  and  perennial  source  of  exchanges. 
Men's  desires  are  so  many  and  various,  and  so  constantly 
becoming  more  numerous  and  miscellaneous,  and  so  ex- 
tremely few  of  his  own  wants  can  ever  be  met  by  any  one 
man  directly,  that  the  foundation  of  exchanges,  and  of  a 
perpetually  increasing  volume  of  exchanges,  is  laid  in  the 
deep  places  of  human  hearts,  namely,  in  Desires  ever  well- 
ing up  to  the  surface  and  demanding  their  satisfaction 
through  an  easy  and  natural  interaction  with  the  ever 
swelling  Desires  of  other  men.  Here  too  is  a  firm  founda- 
tion (a  chief  foundation)  of  human  Society.  Reciprocal 
wants,  which  can  only  be  met  through  exchanges,  draw  men 
together  locally  and  bind  them  together  socially,  in  hamlets 
and  towns  and  cities  and  States  and  Nations,  and  also  knit 
ties  scarcely  less  strong  and  beneficent  between  the  sepa- 
rate and  remotest  nationalities  of  the  earth.  It  is  certain 


VALUE.  19 

that  an  inland  commercial  route  connected  the  East  of 
Asia  with  the  West  of  Europe  centuries  before  Christ,  and 
that  a  traffic  was  maintained  on  the  frontier  of  China  be- 
tween the  Sina  arid  the  Scythians,  in  the  manner  still  fol- 
lowed by  the  Chinese  and  the  Russians  at  Kiachta.  The 
Sina  had  an  independent  position  in  Western  China  as 
early  as  the  eighth  century  before  Christ,  and  five  centuries 
later  established  their  sway  under  the  dynasty  of  Tsin 
(whence  our  word  "  China  ")  over  the  whole  of  the  empire. 
The  prophet  Isaiah  exclaims  (xlix,  12),  "Behold!  these 
shall  come  from  far ;  and  behold !  these  from  the  North 
and  from  the  West;  and  these  from  the  land  of  Sinim" 
The  second  bit  of  our  analysis  leads  to  Desires  as  an 
essential  and  fundamental  element  in  every  commercial 
transaction. 

(c)  There  were  two  efforts,  those  of  the  Tyrians  as  repre- 
sented by  King  Hiram  and  those  of  the  Israelites  as  rep- 
resented by  King  Solomon.  It  was  no  holiday  task  that 
was  implied  in  the  proposition  of  Solomon  to  the  party  of 
the  other  part,  —  "  Send  me  now  cedar-trees,  fir-trees,  and 
algum-trees  out  of  Lebanon;  for  I  know  that  thy  servants 
are  skilful  to  cut  timber  in  Lebanon;  even  to  prepare  me 
timber  in  abundance,  for  the  house  which  I  am  about  to  build 
shall  be  wonderfully  great"  On  the  other  hand,  the  efforts 
insolved  on  the  part  of  the  people  of  Israel  in  paying  for 
these  timbers,  and  for  their  transportation  by  sea  from 
Lebanon  to  Joppa,  were  equally  gigantic.  Solomon's  offer 
in  return  for  the  proposed  service  of  the  Tyrian  king  was 
in  these  words,  —  "  And  behold,  I  will  give  to  thy  servants, 
the  hewers  that  cut  timber,  twenty  thousand  measures  of 
beaten  wheat,  and  twenty  thousand  measures  of  barley,  and 
twenty  thousand  baths  of  wine,  and  twenty  thousand  baths 
of  oil" 

The  reason  why  two  efforts  are  always  an  element  in 


20  PRINCIPLES   OF   POLITICAL  ECONOMY. 

every  act  of  traffic,  however  small  or  however  large  the 
transaction  may  be,  is  the  obvious  reason,  that  the  things 
rendered  in  exchange,  whether  they  be  Commodities,  Ser- 
vices, or  Credits,  invariably  cost  efforts  of  some  kind  to 
get  them  ready  to  sell  and  to  sell  them,  and  no  person  can 
have  a  just  claim  to  render  them  in  exchange,  who  has  not 
either  put  forth  these  efforts  himself  or  become  proprietor 
in  some  way  of  the  result  of  such  efforts.  Efforts  accord- 
ingly are  central  in  all  trade.  Every  trade  in  its  inmost 
nature  is  and  must  be  either  an  exchange  of  two  Efforts 
directly,  as  when  one  of  two  farmers  personally  helps  his 
neighbor  in  haying  for  the  sake  of  securing  that  neighbor's 
personal  help  in  his  own  harvesting,  or  an  exchange  of  two 
things  each  of  which  is  the  result  of  previous  Efforts  of 
somebody,  as  when  a  man  gives  a  silver  dollar  for  a  bushel 
of  wheat.  The  third  bit  of  the  present  analysis  brings  us 
to  Efforts,  perhaps  the  most  important  factor  in  the  whole 
list. 

(d)  There  were  also  two  reciprocal  estimates,  the  esti- 
mate of  King  Hiram  of  all  the  efforts  requisite  to  cut  and 
hew  and  float  the  timber,  as  compared  with  the  aggregate 
of  efforts  needed  to  obtain  the  necessary  wheat  and  barley 
and  wine  and  oil  in  any  other  possible  way ;  and  the  esti- 
mate of  King  Solomon  of  all  the  labors  required  to  grow 
and  market  these  agricultural  products,  as  compared  with 
what  would  otherwise  be  involved  in  getting  the  much- 
wished-for  timbers.  Such  estimates  invariably  precede 
every  rational  exchange  of  products.  It  is  not  in  human 
nature  to  render  a  greater  effort  or  the  result  of  it,  when  a 
lesser  effort  or  the  result  of  it  will  as  well  procure  the  sat- 
isfaction of  a  desire.  Efforts  are  naturally  irksome.  No 
more  of  them  will  ever  be  put  forth  than  is  necessary  to 
meet  the  want  that  calls  them  forth.  No  man  in  his  senses 
will  ever  put  more  labor  on  anything,  with  which  to  buy 


VALUE.  21 

something  else,  than  is  necessary  to  get  that  something 
else  by  direct  effort  or  through  some  other  exchange. 
Here  we  are  on  ground  as  solid  as  the  very  substance  of 
truth  can  make  it.  The  Jews  of  Solomon's  time  were  too 
shrewd  and  sparing  of  irksome  labor  to  devote  themselves 
for  years  to  the  toils  of  the  field  and  of  the  vat  to  get  by 
traffic  the  materials  for  their  temple,  if  they  could  have 
gotten  those  materials  by  a  less  expenditure  of  toil  in  any 
other  way.  Those  Phoenicians  of  Tyre  and  Sidon,  the  born 
merchants  of  the  East,  the  founders  of  commercial  Car- 
thage in  the  West,  if  they  could  have  extorted  from  the 
reluctant  sands  of  their  coast  the  cereals  and  the  vines  and 
olives  requisite  for  their  own  support  with  only  so  much 
of  exertion  as  was  needed  to  get  that  to  market  with  which 
to  buy  them,  would  never  have  taken  the  indirect  in  pref- 
erence to  the  direct  method.  They  took  the  indirect, 
because  it  was  the  easier,  and  therefore  the  better. 

It  may,  accordingly,  be  laid  down  as  a  maxim,  that  men 
never  buy  and  sell  to  satisfy  their  wants  but  when  that  is 
the  easiest  and  best  way  to  satisfy  them.  It  saves  effort. 
It  saves  time.  It  saves  trouble.  It  divides  labor.  It  in- 
duces skill.  It  propels  progress.  But  in  order  to  deter- 
mine which  may  be  the  easier  way,  requires  constant 
estimates  on  the  part  of  each  party  to  a  possible  trade. 
Shall  I  shave  myself  or  go  to  the  barber?  Before  I  decide, 
I  estimate  the  direct  effort  in  the  light  of  the  effort  to  get 
that  with  which  to  pay  the  barber  for  his  service.  If  I 
trade  with  him,  it  is  because  I  deem  it  easier,  cheaper  in 
effort,  more  convenient  in  time.  Trade  means  comparisons 
in  every  case  —  comparisons  by  both  parties  —  and  in  the 
more  recondite  and  complicated  cases,  elaborate  compar- 
isons and  often  comprehensive  calculations  involving 
future  time. 

Now  these  estimates  inseparable  from   exchanges,  and 


22  PRINCIPLES    OF   POLITICAL   ECONOMY. 

these  calculations  which  are  a  factor  in  all  the  far-reaching 
exchanges,  are  mental  activities.  They  quicken  and 
strengthen  the  minds  of  men.  Trade  is  usually,  if  not 
always,  the  initial  step  in  the  mental  development  of  indi- 
viduals and  nations.  Desires  stir  early  in  the  minds  of  all 
children ;  efforts  more  or  less  earnest  are  the  speedy  out- 
come of  natural  desires ;  direct  efforts,  however,  to  satisfy 
these  soon  reach  their  limits ;  it  is  now  but  a  step  over  to 
simple  exchanges,  by  which  the  desires  are  met  indirectly ; 
exchanges  once  commenced  tend  to  multiply  in  all  direc- 
tions, and  the  estimates  that  must  precede  and  accompany 
these  are  mental  states,  —  the  more  of  them,  the  greater 
the  mental  development,  the  higher  the  education ;  conse- 
quently, commerce  domestic  and  foreign  is  a  grand  agency 
in  civilization,  a  constant  and  broadening  impulse  towards 
progress  in  all  its  forms;  and  Christianity,  as  we  have 
already  seen,  is  friendly  to  commerce  in  its  every  breath. 
Those,  therefore,  who  talk  and  preach  about  Trade  as  tend- 
ing to  materialism,  do  not  know  what  they  are  talking 
about.  Because  Commodities  are  material  things,  and 
because  a  portion  of  the  trade  of  the  world  concerns  itself 
with  commodities,  these  shallow  thinkers  jump  to  the  con- 
clusion that  trade  is  materialistic.  It  is  just  the  reverse. 
Let  us  hear  no  more  from  Professor  Pulpit  or  Platform 
that  buying  and  selling  is  antagonistic  to  men's  higher 
intellectual  and  spiritual  culture,  because  the  present  care- 
ful analysis  has  brought  us  indubitably  to  mental  Esti- 
mates and  prolonged  comparisons,  which  are  activities  of 
Mind,  as  the  fourth  and  a  leading  factor  among  the  radical 
elements  of  Sale. 

(e)  There  were  two  renderings,  King  Hiram's  rendering 
at  Joppa  the  desired  cedars  from  the  mountains  of  Leb- 
anon, and  King  Solomon's  rendering  in  return  at  Tyre  the 
food  products  grown  in  his  fertile  country.  These  render- 


VALUE.  23 

ings  were  visible  to  all  men.  Unlike  the  desires  and  the 
estimates,  which  were  subjective  and  invisible ;  the  actual 
exchange  of  the  products,  the  culmination  of  the  previous 
efforts,  the  stipulated  renderings  by  and  to  each  party,  were 
outward  and  objective  —  "known  and  read  of  all  men." 
This  is  the  reason  why  public  attention  is  always  strongly 
drawn  to  this  particular  link  of  the  chain  of  events  which 
we  are  now  unlocking  and  taking  apart,  while  other  links 
of  the  series,  that  are  just  as  essential,  almost  wholly  escape 
observation.  The  ports  and  the  markets  are  apt  to  be 
noisy  and  conspicuous,  when  the  desires  and  the  estimates 
and  the  satisfactions,  without  which  in  their  place  there 
would  be  no  market-places,  work  in  silence,  and  leave 
no  records  except  the  indirect  one  of  the  renderings 
themselves. 

It  is  of  great  moment  to  note  here,  that  each  of  the  two 
parties  to  an  exchange  always  has  an  advantage  over  the 
other,  either  absolute  or  relative,  in  the  rendering  his  own 
product,  whatever  it  may  be,  as  compared  with  his  present 
ability  to  get  directly  or  through  any  other  exchange  the 
product  he  receives  in  return.  Take  the  example  in  hand. 
Cedars  and  sandal-wood  were  natural  to  Mount  Lebanon ; 
there  were  no  other  workmen  in  those  regions  of  country 
that  could  "  skill  to  hew  timber  like  unto  the  Sidonians  "  ; 
the  Mediterranean  afforded  a  level  and  free  and  easy  high- 
way from  its  northern  coast  to  the  Judean  seaport  at 
Joppa;  and  all  these  natural  and  acquired  facilities  put 
King  Hirarn  into  a  posture  of  advantage  in  the  rendering 
of  timber,  not  only  over  the  Jews,  but  also  over  all  the 
other  peoples  in  the  basin  of  the  midland  sea.  Still  this 
advantage,  great  as  it  was,  could  only  be  made  a  real  and 
palpable  gain  to  themselves,  the  proprietors  of  the  timber, 
by  means  of  some  exchange  with  somebody  else,  by  which 
some  wants  of  their  own  greater  than  their  present  want 


24  PRINCIPLES   OF   POLITICAL   ECONOMY. 

of  timber,  could  be  supplied  by  means  of  the  timber. 
They  had  more  of  that  commodity,  and  more  skill  to  fash- 
ion and  transport  it,  than  their  present  and  immediately 
prospective  needs  could  make  use  of ;  and  the  only  way 
in  which  they  could  practically  avail  themselves  of  their 
advantages,  was,  to  sell  their  surplus  timber  and  buy  with 
it  something  that  they  needed  more.  Otherwise  their  very 
advantage  perished  with  them.  God  has  scattered  such 
a  diversity  of  blessings  and  capacities  and  opportunities 
over  the  earth  on  purpose,  that,  through  traffic,  on  which 
his  special  benediction  rests,  the  good  of  each  part  and 
people  may  become  the  portion  of  other  parts  and  peoples. 
So,  on  the  other  hand,  of  the  southern  neighbors  of  the 
Tyrians.  There  the  earth  brought  forth  by  handfuls. 
There  was  an  abundance  of  corn  in  the  land,  even  to  the 
tops  of  the  mountains.  Its  fruit  did  indeed  shake  like 
Lebanon.  But  there  were  no  cedars  there,  no  fir-trees,  no 
sandal-woods.  How  short-sighted,  then,  and  futile,  would 
it  have  been  for  the  Jews,  to  try  to  hang  on  in  their  own 
behoof  to  all  the  natural  advantages  that  God  had  given 
to  them,  and  to  say,  We  will  not  part  with  the  direct  re- 
sults of  any  of  them,  we  will  build  treasure-cities  as  they 
did  in  Egypt,  we  will  store  up  all  the  fruits  of  these  fat 
years  against  the  possible  coming  of  some  famine  years  in 
the  time  to  come.  That  is  anything  in  ordinary  times  but 
the  divine  plan.  It  is  anything  but  the  letter  and  spirit 
of  the  divine  injunction :  "  Him  that  Jceepeth  back  corn  the 
people  curse  ;  but  blessing  shall  be  upon  the  head  of  him  that 
selleth  it"  (Prov.  xii,  26).  Had  they  talked  and  acted 
thus,  no  temple  could  then  have  been  built  in  Jerusalem, 
and  the  people  of  that  generation  would  have  lost  the 
moral  and  religious  impulse  and  uplifting  of  their  service 
and  sacrifice.  Their  grain  would  have  become  worthless 
from  its  very  abundance,  and  would  have  decayed  on  their 


VALUE.  25 

hands.  They  would  have  missed  a  great  gain  for  them- 
selves, and  would  have  snatched  away  from  their  neigh- 
bors to  the  northward  a  providential  opportunity  for  an 
equal  gain. 

The  general  truth  must  not  be  lost  sight  of  here,  even 
in  passing,  that  all  trade  whatsoever  is  based  upon  a 
Diversity  of  relative  Advantage  as  between  the  parties 
exchanging  products.  If,  for  example,  the  Hills  of  Judah 
and  the  Mountains  of  Israel  had  been  covered  with  tim- 
ber suitable  for  building  the  temple,  and  the  coasts  of  Tyre 
and  Sidon  and  the  foot-hills  of  Lebanon  had  been  fertile 
stretches  of  arable  land,  this  particular  trade  would  never 
have  been  thought  of  and  could  never  have  been  realized. 
There  would  have  been  no  gain  in  it  for  either  party,  and 
unless  there  be  a  valid  gain  for  both  parties  at  least  in 
prospect,  no  trade  will  ever  spring  into  being,  because 
there  would  be  no  motive,  no  impulse,  no  reason,  in  it. 
Unless  the  Jews  could  get  the  timber  easier  by  raising 
grain  to  pay  for  it,  and  the  Tyrians  get  the  oil  and  wheat 
and  barley  easier  by  cutting  and  floating  timber  to  pay  for 
them,  —  no  trade  ;  but  the  greater  easiness  to  each  actually 
came  about,  because  each  had  an  Advantage  both  natural 
and  acquired  over  the  other  in  his  own  rendering,  and  the 
mutual  gain  of  the  trade  was  wholly  owing  to  that  circum- 
stance. So  far  as  that  matter  went,  the  Tyrians  had  no 
cause  to  envy  their  neighbors  the  superior  soil  of  the 
south,  for  they  reaped  indirectly  but  effectively  a  part  of 
those  harvests  for  themselves ;  and  the  Jews  had  no  reason 
to  be  jealous  of  their  northern  neighbors  on  account  of  the 
noble  forests  crowning  their  mountains,  because  through 
trade  they  secured  easily  to  themselves  a  share  of  that  vast 
natural  advantage.  Diversity  of  Advantage  both  natural 
and  acquired  is  the  sole  ground  of  Trade  both  domestic 
and  foreign ;  and  consequently  by  means  of  trade  the 
peculiar  advantages  of  each  are  fully  shared  in  by  all. 


26  PRINCIPLES    OF   POLITICAL   ECONOMY. 

It  is  perhaps  less  obvious  but  surely  equally  true,  that 
the  greater  the  relative  diversity  of  advantage  as  between 
two  exchangers,  the  more  profitable  does  the  exchange 
become  to  each.  If  the  Yale  of  Sharon  had  been  twice 
as  fertile  as  it  was,  and  the  cedars  of  Lebanon  twice  as 
large  and  lofty  as  they  were,  the  easier  and  better  would 
Israel  have  gotten  its  timber,  and  the  more  secure  and 
abundant  would  have  become  the  food  of  Tyre  and  Sidon ; 
and,  therefore,  the  more  unreasonable,  or  rather  the  more 
absurd  and  wicked,  would  have  been  any  envy  or  jealousy 
of  either  of  the  superior  advantages  at  any  point  or  points 
of  the  other.  So  universally.  By  the  divine  Purpose  as 
expressed  in  the  constitution  of  Nature,  in  the  structure 
of  Man,  and  in  the  laws  of  Society,  Trade  in  good  measure 
and  degree  imparts  to  each  the  bounties  of  all,  arms  each 
with  the  power  of  all,  and  impels  each  by  the  progress  of 
all. 

One  other  important  matter  is  closely  connected  with 
these  two  Renderings,  which  is  the  fifth  bit  in  succession 
of  our  present  analysis,  namely  this,  that  traffic  renderings 
always  make  necessary  new  and  better  routes  of  travel 
and  transportation.  It  is  mainly  for  this  reason,  that  per- 
sons and  things  have  to  be  carried  to  distances  less  or 
greater  in  order  to  consummate  these  Renderings  of  home 
and  foreign  commerce,  that  roads  by  land  and  routes  by  sea 
have  been  sought  for  and  found,  made  and  made  shorter, 
improved  as  to  method  and  facilitated  as  to  force,  from  the 
dawn  of  History  until  the  present  hour.  It  was  to  get 
the  goods  of  India,  and  so  find  a  market  for  the  goods 
of  Europe,  that  the  earliest  land  routes  between  the  two 
were  tried  and  maintained.  The  ground-thought  of 
Columbus,  meditated  on  for  years,  was  to  discover  a  new 
commercial  way  to  India  ;  Magellan  with  the  same  intent 
sailed  westward  through  the  Straits  that  wear  his  name, 


VALUE.  27 

and  so  circumnavigated  the  globe :  repeated  searches 
mainly  with  the  mercantile  view,  never  long  intermitted, 
have  attempted  ever  since  the  North-West  or  the  North- 
East  passage  to  India;  Vasco  da  Gama  in  1497  boldly 
accomplished  the  East  passage,  and  thus  changed  for  all 
the  Continents  the  channels  of  trade ;  the  West  now  trades 
with  all  the  East  through  tho  Suez  Canal,  dug  for  that 
express  purpose;  and  the  words,  "Panama"  and  "Nica- 
ragua "  are  upon  everybody's  lips,  simply  because  through 
Central  America  is  the  shortest  and  safest  route  for  men 
and  goods  to  and  from  all  the  Oceans. 

Quite  recently  Dr.  W.  Heyd  has  announced  through  the 
Berlin  Geographical  Society  the  discovery  of  two  commer- 
cial routes  from  India  to  the  West  not  hitherto  described. 
Trebizond  (on  the  Black  Sea)  and  Tana  (at  the  mouth  of 
the  Don)  were  the  chief  distributing  points.  Through 
Tana  passed  westward  the  pepper  and  ginger  and  nutmeg 
and  cloves;  and  the  price  of  spices  is  said  to  have  doubled 
in  Italy,  when  the  Italians  were  for  a  time  shut  out  of 
Tana  in  1343.  The  chief  overland  route  from  India  to 
Tana  ran  through  Cabul  to  Khiva  by  the  Oxus,  and  then 
by  land  through  Astrakhan.  The  other  route  to  Trebi- 
zond passed  through  Persia,  and  came  out  by  Tabriz  to  the 
Black  Sea.  It  may  perhaps  be  pardoned,  if  a  far  homelier, 
more  modern,  and  even  local,  illustration  be  given  of  the 
present  point,  that  trade  makes  roads.  The  western  wall 
of  Williamstown  is  the  mountain  range  of  the  Taconics, 
whose  general  height  is  about  2000  feet  above  tide  water 
at  Albany.  Within  the  limits  of  this  town  are  four  natural 
depressions  or  passes  over  this  range,  which  is  also  the 
watershed  between  the  Hoosac  River  on  the  east  and  the 
Little  Hoosac  on  the  west.  About  the  beginning  of  this 
century  i  the  population  was  quite  sparse  in  both  these  val- 
leys, while  the  impulse  to  travel  and  traffic  over  the  barrier 


28  PRINCIPLES    OF    POLITICAL   ECONOMY. 

was  sufficient  to  build  (wholly  at  local  expense)  wagon 
roads  over  each  of  the  four  passes,  one  of  which  soon  after 
became  a  turnpike  between  Northampton  and  Albany; 
and  another  was  built  mainly  to  accommodate  the  medical 
practice  on  the  west  side  of  the  mountain  of  Dr.  Samuel 
Porter — a  Williamstown  surgeon  of  local  eminence.  So 
soon  as  railroads  were  constructed  to  run  down  these  par- 
allel valleys  (railroads  themselves  are  perhaps  the  best 
illustration  of  the  point  in  hand),  the  mountain  roads  were 
relatively  deserted,  and  only  two  of  them  are  now  open  to 
transient  travel.1 

Lastly,  (f)  There  were  two  satisfactions,  the  satisfaction 
of  the  southern  king  in  actually  obtaining  the  excellent 
timbers,  without  which  the  cherished  national  temple  could 
not  have  gone  up;  and  the  satisfaction  by  the  northern 
king  in  the  easy  receiving  of  the  abundant  food  products 
for  the  daily  maintenance  of  his  court  and  kingdom.  The 
simple  story  of  these  commercial  transactions  between  Jew 
and  Tyrian  indicates  clearly  enough,  what  might  have 
been  anticipated  and  what  always  happens  in  such  circum- 
stances, not  only  a  mutual  satisfaction  at  the  completion 
of  each  specific  exchange,  but  also  a  general  relation  of 
contentment  and  peace  in  consequence  of  advantageous 
commercial  intercourse.  "  And  Hiram,  king  of  Tyre,  sent 
his  servants  unto  Solomon  ;  for  he  had  heard,  that  they  had 
anointed  him  king  in  the  room  of  his  father  ;  because  Hiram 
was  ever  a  lover  of  David.  And  it  came  to  pass,  when  Hiram 
heard  the  words  of  Solomon,  that  he  rejoiced  greatly,  and 
said,  Blessed  be  the  Lord  this  day,  which  hath  given  unto 
David  a  wise  son  over  this  great  people  ;  and  there  was  peace 
between  Hiram  and  Solomon ;  and  they  two  made  a  league 
together" 

1  See  on  this  general  topic,  Mommsen's  Provinces  of  the  Roman 
Empire,  passim. 


VALUE.  29 

It  is  plain  to  reason  and  to  all  experience,  that  mutual 
Satisfactions  are  the  ultimate  thing  in  exchanges.  Our 
present  analysis  can  go  no  further,  for  the  reason,  that  we 
have  now  reached  in  Satisfactions  the  end,  for  the  sake  of 
which  all  the  previous  processes  have  been  gone  through 
with.  Persons  do  not  engage  in  buying  and  selling  for 
the  mere  pleasure  of  it,  but  always  for  the  sake  of  some 
satisfactions  derivable  to  both  parties  from  the  issue  of  it. 
Ordinary  self-inspection  and  foresight  and  industry  being 
presupposed,  the  issue  of  exchanges  is  just  what  was  ex- 
pected by  the  two  persons,  the  satisfaction  of  each  follows 
as  a  matter  of  course,  and  stimulates  to  new  exchanges  in 
ever- widening  circles. 

Since  the  desires  of  all  men,  which  the  efforts  of  other 
men  can  satisfy  through  exchange,  are  indefinite  in  num- 
ber and  unlimited  in  degree,  there  is  no  end  of  human 
Satisfactions  to  be  reached  along  this  road  of  reciprocal 
trade ;  and  since  the  very  object  of  all  trade  and  the  actual 
result  of  all  trade  (the  exceptions  are  infinitesimal)  is  to 
multiply  and  reduplicate  continually  mutual  Satisfactions 
among  men ;  we  can  see  right  here  what  a  loss  and  wrong 
it  is,  what  a  wanton  destruction  of  possible  human  hap- 
piness it  is,  what  a  bar  to  progress  among  men  in  comforts 
and  powers  it  is,  for  nations  to  impede  and  to  prohibit 
commerce  by  legislation !  As  we  shall  see  more  fully  in  a 
later  chapter,  Governments  can  have  no  moral  or  constitu- 
tional right  to  restrict  the  trade  of  their  people,  except  in 
the  sole  interest  of  revenue  or  health  or  morals. 

Such  is  the  constitution  of  the  universe,  that  a  really 
good  thing  is  usually  cognate  with  and  inseparable  from 
a  good  many  other  good  things.  Buying  and  selling,  as 
we  have  now  clearly  seen,  springs  right  out  of  the  nature 
of  men  in  the  circumstances  in  which  they  are  providen- 
tially placed  on  the  earth,  and  ends  in  the  satisfaction  of 


30  PRINCIPLES   OF   POLITICAL   ECONOMY. 

innumerable  wants  common  to  all  men.  This  makes  trade 
a  thoroughly  good  thing  in  itself ;  and  consequently  it  is 
intimately  associated  with  many  other  good  things.  The 
scriptural  instance,  that  we  have  been  examining,  gives  a 
neat  illustration  of  this :  "  and  there  was  peace  between 
Hiram  and  Solomon  ;  and  they  two  made  a  league  together" 
The  mutually  profitable  exchange  of  commodities  led  to  a 
feeling  of  amity  between  the  two  neighboring  kings ;  the 
feeling  of  amity  led  to  a  treaty  of  Peace  between  the  two 
adjacent  nations ;  and  the  "  league  "  so  ratified  not  only  kept 
out  war  from  their  borders,  but  also  permitted  the  unhin- 
dered continuance  of  profitable  exchanges  between  them. 

So  it  is  always.  Peace  waits  on  Commerce.  Good-will 
among  the  nations  is  strengthened  by  the  ties  of  interest 
and  profit  among  their  citizens.  The  mercantile  classes  as 
such  are  always  averse  to  war,  because  war  is  the  natural 
enemy  of  exchanges.  Thus  traffic  leads  to  peace  and  tends 
to  maintain  it,  and  peace  preludes  increased  prosperity,  and 
commercial  prosperity  under  freedom  is  wholly  friendly  to 
mental  and  moral  progress,  and  Christianity  walks  before 
and  all  along  this  line  of  individual  and  national  blessing. 
The  commercial  treaty  of  1860  between  France  and  Eng- 
land has  tended  powerfully,  perhaps  more  powerfully  than 
any  other  single  cause,  to  keep  those  formerly  inter-bel- 
ligerent nationalities  in  peace  and  amity  ever  since. 

We  will  now  put  into  a  little  table  the  final  results  of 
the  present  analysis  of  Buying  and  Selling.  The  ultimate 
elements  seem  to  be  these : 

1.  Two  Persons.  4.   Two  Estimates. 

2.  Two  Desires.  5.   Two  Renderings. 

3.  Two  Efforts.  6.   Two  Satisfactions. 

The  thoughtful  reader  will  note  in  this  table  the  fact, 
that  three  of  these  elements  are  objective,  that  is,  outward 


VALUE.  31 

and  visible ;  and  the  other  three  are  subjective,  that  is, 
inward  and  invisible.  Persons,  Efforts,  Renderings,  are 
seen  and  known  of  all  men ;  Desires,  Estimates,  Satisfac- 
tions, can  be  directly  known  only  to  the  persons  who  feel 
and  make  them.  This  is  a  peculiarity  of  Political  Economy, 
that  has  been  far  too  little  observed  even  when  it  has  been 
observed  at  all.  Objective  and  subjective  elements  in  it 
meet  and  mingle  in  each  transaction.  Indeed,  they  alter- 
nate, as  is  shown  in  the  table  above :  first  a  Seen,  and  then 
an  Unseen,  Element  throughout.  It  is  this  commingling 
of  outward  and  inward,  visible  and  invisible,  that  makes 
all  the  difficulty  and  gives  all  the  fascination  in  Political 
Economy.  Whatever  carries  us  into  the  steady  though 
billowy  play  of  universal  iiuman  nature  is  at  once  difficult 
and  fascinating. 

Quite  contrary,  however,  to  a  common  impression,  the 
certainty  both  of  action  and  prediction  in  all  the  other  Sci- 
ences as  well  as  in  Economics  lies  rather  in  the  unseen  ele- 
ments than  in  those  that  are  seen.  Take  for  an  example  the 
calculation  of  an  eclipse :  it  is  not  so  much  from  what  is 
visible  in  the  heavens  and  on  the  earth  that  the  astron- 
omer infers  and  predicts  to  the  instant  the  shadow  of  one 
orb  thrown  upon  another,  as  it  is  from  the  wholly  hidden 
but  ever-enduring  forces  of  gravitation  constantly  relating 
these  orbs  one  to  the  other.  So  it  is  of  the  Sciences 
generally ;  progress  is  made  in  them  and  certainties  are 
reached  in  connection  with  them,  "  while  we  look  not  at  the 
things  which  are  seen,  but  at  the  things  which  are  not  seen  ; 
for  the  things  which  are  seen  are  but  for  a  time ;  but  the 
things  which  are  not  seen  are  everlasting"  Invisible  De- 
sires and  Satisfactions  felt  in  connection  with  Exchanges 
are  among  the  most  constant  elements  of  human  nature ; 
they,  as  it  were,  give  birth  to  the  relatively  more  transient 
(though  visible)  data  of  Efforts  and  Renderings;  while 


32  PRINCIPLES   OF  POLITICAL  ECONOMY. 

inferences  and  conclusions  and  even  predictions  may  be 
securely  drawn  from  all  of  these,  giving  a  solid  ground  for 
Political  Economy  to  stand  on,  —  almost  as  solid  as  the 
ground  of  the  chief  Physical  Sciences. 

2.  We  will  next  examine  the  inmost  nature  and  the  out- 
ward manifestations  of  Value.  "  Value  "is  by  much  the 
most  important  word  in  the  Science  of  Economics ;  and  we 
must,  therefore,  comprehend  it  thoroughly,  root  and  branch. 
Nearly  all  the  writers  in  English  have  used  in  place  of 
this  the  word  "  Wealth  "  and  those  in  other  languages 
some  equivalent  and  equally  concrete  word ;  but  the  pres- 
ent writer  fully  satisfied  himself  some  twenty-five  years 
ago,  that  it  is  impossible  to  use  that  word  to  any  advan- 
tage in  economical  discussions,  owing  to  its  inherent 
ambiguities  and  concrete  associations  in  the  minds  of  men. 
He  utterly  discarded  the  word  at  that  time,  and  has  found 
not  the  least  occasion  to  pick  it  up  again  since,  and  believes 
now  that  his  substitution  of  the  word  "  Value  "  in  place  of 
it  will  ultimately  be  seen  to  have  been  his  greatest  contri- 
bution to  that  Science,  to  which  he  devoted  his  life. 

Even  professed  and  excellent  logicians,  like  John  Stuart 
Mill,  found  the  word  "Wealth"  an  insoluble  element  in 
the  science  of  Economics ;  he  commenced  his  great  work 
by  writing,  that  it  was  not  really  needful  to  define  the 
word  which  nevertheless  he  laid  at  the  foundation  of  his 
discussions,  that  "  every  one  has  a  notion  sufficiently  cor- 
rect for  common  purposes  of  what  is  meant  by  Wealth  " ; 
he  goes  on,  however,  to  give  at  least  a  half-dozen  definitions 
of  the  word,  no  two  of  which  are  at  all  consistent  with 
each  other,  only  one  of  which  embodies  a  clear  and  scien- 
tific conception,  and  even  to  this  one  he  himself  does  by 
no  means  coherently  adhere  throughout  his  treatise.  No 
wonder,  that  this  great  man  died  thoroughly  dissatisfied 
with  his  own  work  in  Economics,  and  wishing  for  longer 


VALUE.  33 

life  in  which  to  recast  and  improve  it !  No  wonder,  too, 
that  the  crowd  of  writers  both  English  and  American, 
many  of  them  able  and  thoughtful  and  otherwise  logical, 
who  have  been  content  to  continue  to  use  this  irreducible 
and  utterly  unscientific  word  at  the  bottom,  have  made  a 
mess  of  it ! 

In  dropping  the  word,  "  Wealth,"  accordingly,  Political 
Economy  has  dropped  a  clog,  and  its  movements  are  now 
relatively  free  and  certain ;  and  it  is  all  the  more  incum- 
bent on  the  Science  for  that  very  reason  to  define  the  good 
word  that  it  substitutes  for  a  bad  one  with  absolute  clear- 
ness, to  explain  it  through  and  through  until  it  become 
quite  transparent,  and  then  always  to  use  it  in  its  defined 
and  economical  sense,  and  none  other,  even  though  the 
same  word  be  properly  enough  used  in  other  senses  in 
common  speech  and  in  other  than  scientific  relations. 
Exactly  that  is  what  we  are  now  going  to  attempt  to  do 
in  a  simple  and  consecutive  order. 

(a)  Perhaps  it  will  help  us  to  find  out  precisely  what 
Value  is  by  seeing  as  clearly  as  possible  at  the  outset  what 
it  is  not.  It  is  not  easy,  and  never  can  be  made  so,  to 
teach  and  to  learn  distinctly  what  Value  is  in  its  ultimate 
nature  and  constant  changes.  Here  is  the  one  unavoid- 
able difficulty  that  lies  at  the  very  threshold  of  Political 
Economy;  and  this  difficulty,  which  is  not  found  as  in  the 
case  of  "  Wealth  "  in  the  meaning  of  the  word  but  in  the 
complex  character  of  that  which  the  word  describes,  once 
overmastered,  and  one  walks  thereafter  with  ease  and  pleas- 
ure throughout  the  economic  domain.  It  would  be  wrong 
and  cruel  to  deny  that  just  here  is  one  hard  place  in  the 
road  for  teacher  and  pupils  to  get  over.  It  arises  wholly 
from  the  nature  of  the  subject,  as  we  shall  soon  see,  and  not 
at  all  from  the  insufficiency  of  the  word,  Value.  We  have 
already  seen  fully,  that  Buying  and  Selling  iji  each  and 


34  PRINCIPLES   OF   POLITICAL   ECONOMY. 

every  transaction  is  complex  and  relative,  involving  twelve 
elements  every  time  ;  that  Desires  and  Estimates  and  Ren- 
derings are  especially  relative,  —  each  party  to  a  trade  de- 
sires something  in  possession  of  the  other,  estimates  that 
something  relatively  to  something  in  his  own  possession, 
and  finally  renders  to  the  other  his  own  something  for  the 
sake  of  receiving  the  other's  something.  Now  everybody 
is  used  to  all  this  and  practically  understands  it  perfectly, 
but  it  is  complicated  and  reciprocal  nevertheless,  and  Value, 
which  is  the  single  birth  of  the  two  Renderings,  though 
perfectly  intelligible  to  him  that  takes  pains,  is  not  a  thing 
to  be  seized  once  for  all  at  a  passing  trot. 

Value,  then,  is  not  a  quality  of  single  things,  belonging 
to  them  as  if  by  nature,  as  hardness  is  a  quality  of  a  rock 
or  gravity  is  an  attribute  of  gold;  because  all  physical 
qualities  in  physical  things,  all  that  which  makes  or  helps 
to  make  anything  such  as  it  is,  may  be  learned  by  a  study 
of  the  things  themselves  by  themselves ;  a  careful  exami- 
nation and  analysis  of  the  mechanical  and  chemical  proper- 
ties of  any  physical  thing  will  discover  all  its  distinguishing 
characteristics,  all  that  makes  it  that  particular  thing  in 
distinction  from  all  other  things ;  but  it  is  plain  already, 
that  the  Value  of  anything  (if  it  have  value)  cannot  be 
found  out  by  studying  that  particular  thing  by  itself  alone ; 
the  questioning  of  the  senses  however  minute,  the  test  of 
the  laboratory  however  delicate,  can  never  determine  how 
much  anything  is  worth,  because  that  always  implies  a  com- 
parison between  two  things,  or  more  strictly  a  comparison 
between  two  Renderings  in  exchange.  Value  is  not  an 
attribute  of  single  things :  not  even  if  the  things  be  physi- 
cal and  tangible. 

Now  two  other  kinds  of  things  are  bought  and  sold 
besides  physical  and  tangible  things,  namely,  personal  ser- 
vices and  .commercial  credits ;  and  it  is  very  plain,  that 


VALUE.  35 

Value  cannot  be  a  quality  of  any  one  personal  service 
rendered,  as  looked  at  by  itself,  such  as  the  service  of  a 
physician  towards  a  fever  patient,  because  the  service  in 
and  of  itself  might  be  the  same  whether  rendered  to  his 
own  child  or  the  child  of  one  of  his  patrons,  while  in  the 
former  case  there  would  be  no  value,  and  in  the  latter 
there  would  be ;  and  so  too  the  very  name  "  commercial 
credit"  implies  an  exchange  of  two  Renderings,  out  of 
which  Value  always  emerges,  and  not  at  all  an  attribute 
of  one  credit  considered  by  itself.  Value  is  no  more  a 
characteristic  of  single  intangible  services  and  claims  than 
it  is  of  single  intangible  commodities  rendered. 

And  what  makes  all  this  still  more  certain  is,  that  Value 
even  in  physical  things,  and  perhaps  still  more  in  services 
and  claims,  is  all  the  while  changing  under  demand  and 
supply,  now  rising  and  then  falling,  while  the  physical 
properties  of  things,  that  make  them  what  they  are,  are 
fixed  and  unchangeable.  A  gold  eagle,  for  example,  has 
certain  primary  qualities  as  gold,  without  which  it  would 
not  be  gold;  it  is  hard  and  heavy  and  colored:  gold  is 
gold  the  world  over  and  in  all  ages :  Value  is  not  one  of 
these  primary  qualities,  nor  even  a  secondary  quality,  nor 
any  quality  at  all,  of  gold  as  such ;  because  circumstances 
are  readily  conceived  and  have  often  occurred,  in  which 
gold  has  no  Value  even  in  exchange ;  for  instance,  among 
a  crew  abandoned  at  sea,  a  bag  of  gold  belonging  to  one 
of  the  sailors  might  not  buy  even  a  biscuit  belonging  to 
another ;  all  the  natural  qualities  of  the  gold  are  present, 
—  it  is  still  yellow  and  weighty  and  solid, — but  its  Value 
has  escaped  altogether.  Gold  is  always  19  times  heavier 
than  water:  specific  gravity  is  a  quality  and  is  constant 
in  all  physical  things :  Value  is  not  a  quality  in  this  sense 
at  all,  inasmuch  as  it  is  something  that  is  constantly  chang- 
ing, rising  or  falling,  and  not  infrequently  disappearing 
altogether,  leaving  no  sign. 


36  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Ignorance  of  this  vastly  important  truth  has  pecuniarily 
ruined  thousands  upon  thousands  of  the  people  of  this 
country  during  the  last  20  years.  They  have  gone  into 
the  mining  of  metals,  gold  and  silver  and  copper,  some- 
times as  individuals  and  more  often  as  companies  gather- 
ing in  the  driblets  of  investors,  under  the  notion  that  if 
they  could  only  get  these  metals  out  of  the  ground  their 
Value  would  be  just  as  secure  and  fixed  as  their  physical 
qualities.  They  found  out  their  mistake  in  bitterness  of 
spirit.  For  example,  the  Value  of  an  ounce  of  silver  has 
gone  down  and  down  and  down  as  the  quantity  of  silver 
excavated  has  increased  under  zealous  digging,  in  accord- 
ance with  the  universal  and  pitiless  law  of  Supply  and 
Demand.  So  of  copper.  And  both  these  great  monetary 
interests  went  to  Congress  and  secured  the  passage  of  laws 
designed  to  lift  artificially  the  Values  that  were  sinking 
naturally  under  increased  Supply,  the  silver  men  by  a  law 
requiring  the  United  States  to  buy  and  mint  at  least 
$2,000,000  in  silver  each  month  whether  the  silver  dollars 
were  needed  or  not,  and  the  copper  men  by  a  law  imposing 
a  tariff-tax  on  foreign  copper  that  has  actually  lifted  the 
price  two  cents  a  pound  on  the  average  of  the  whole  20 
years  above  the  average  price  of  copper  in  the  markets  of 
the  world. 

Take  another  illustration  of  disappearing  Values,  this 
time  in  lands,  long  supposed  to  be  the  most  stable  in  value 
of  all  human  possessions.  Whole  tiers  of  farms  in  the 
writer's  native  town  in  New  Hampshire,  and  for  that  mat- 
ter all  over  New  England  as  well,  that  in  his  boyhood 
supported  large  families,  and  when  sold  usually  brought  a 
fair  price,  are  now  abandoned  of  their  owners  as  wholly  or 
comparatively  worthless,  and  are  allowed  to  grow  up  into 
forest  again,  without  a  sign  of  present  human  habitation 
upon  them.  Value  is  something  that  needs  to  be  studied 
carefully,  if  it  is  to  be  fully  understood. 


VALUE.  37 

(b)  Perhaps  the  origin  of  the  word,  "Value,"  will  throw 
some  light  upon  its  nature  and  changes.     Etymology  can 
never  be  safely  despised  in  scientific  discussions,  although 
words  are  perpetually  changing  their  meaning  in  the  mouths 
of  men.    No  science  can  afford  to  build  upon  the  transient 
meaning  of  a  word;  and  yet  it  is  clearly  possible  so  to  use 
words  as  to  reach  and  describe  ultimate  and  unchanging  facts 
in  science  ;  and  some  knowledge  of  the  original  meaning  of 
words  is  always  a  help  in  getting  at  those  definitions  and 
analyses  of  facts  that  are  permanent  in  science.     Let  us 
hold  fast  to  the  cheering  truth  exemplified  on  all  sides  of 
every  science,  that  a  just  analysis  and  exact  description 
of  ultimate  facts  in  any  department  of  knowledge  are  for 
all  time,  in  spite  of  the  transient  meaning  of  current  words. 

The  present  word  is  derived  from  the  Latin  VALEKE,  to 
pass  for,  to  be  worth.  There  is  a  strong  hint  of  a  compari- 
son in  the  original  meaning  of  the  word,  and  the  current 
use  of  it  both  in  Latin  and  English  develops  the  hint  into 
a  certainty.  In  common  language,  when  the  Value  of 
anything  is  asked  for,  the  answer  always  comes  in  the 
terms  of  something  else.  If  the  question  be,  How  much 
is  it  worth  ?  the  answer  is,  So  many  dollars  or  cents. 
Now  the  cents  or  dollars  are  very  different  things  from 
those  whose  value  is  thus  inquired  after;  and  so  we  see 
again  from  another  point  of  view  that  Value  is  a  relative 
matter,  since  it  clearly  implies  a  comparison  between  two 
distinct  things  ;  and,  if  so,  it  is  clearly  enough  not  a  quality 
of  any  one  thing,  and  of  course  it  would  be  useless  to  try 
to  ascertain  the  Value  of  anything  by  a  study  of  that  thing 
alone.  Etymology  thus  easily  brings  us  up  to  our  present 
vital  question,  and  will  assist  us  to  solve  it  completely. 

(c)  What  is  Value  ?     Plainly  it  is  the  result  of  a  com- 
parison instituted  between  two  things,  using  the  word, 
"  things,"  here  in  its  broadest  sense.     But  who  institutes 


38  PKINCIPLES   OF   POLITICAL  ECONOMY. 

the  comparison  ?  And  who  is  competent  to  announce  the 
result  of  it  in  Value  ?  A  comparison  is  required  in  order 
to  ascertain  the  length  of  a  stick  of  timber  in  feet  and 
inches,  and  a  carpenter's  square  is  the  instrument  by  which 
the  comparison  is  made,  and  it  makes  no  difference  in  the 
result  whose  the  square  is  or  whose  the  stick  of  timber  is, 
since  the  square  and  the  stick  have  in  common  the  physical 
quality  of  length,  and  a  simple  comparison  of  square  with 
stick  determines  the  length  of  the  latter,  and  one  man  in 
this  case  may  determine  the  result  by  himself  alone,  and 
it  is  not  needful  that  he  be  the  owner  of  either  of  the 
things  compared. 

But  it  is  a  different  kind  of  comparison  from  this  that 
issues  in  Value.  Let  us  suppose  an  exchange  of  a  bushel 
of  wheat  for  a  mason's  trowel :  there  is  no  common  phys- 
ical quality,  as  length,  between  the  wheat  and  the  trowel ; 
and  it  is  evident,  that  no  one  man  can  measure  in  any  form 
one  of  these  two  commodities  by  means  of  the  other.  It 
is  a  peculiar  kind  of  comparison  that  is  involved  in  any 
and  every  trade ;  and  the  first  peculiarity  of  it  is,  as  we 
have  already  seen  in  another  connection,  that  it  always 
requires  "  two  persons  "  to  make  it ;  and  each  of  the  two 
persons  must  always  be  the  virtual  owner  of  one  of  the 
two  things  exchanged.  A  thief  may  indeed  go  through 
the  motions  of  selling  a  stolen  horse,  but  as  he  is  not  the 
owner  of  the  horse  there  can  be  no  sale,  and  the  actual 
owner  may  take  his  horse  wherever  he  finds  it  even  in  the 
hands  of  an  innocent  third  party.  In  other  words,  there 
must  ever  be  "  two  efforts "  also,  two  legitimate  efforts 
giving  a  valid  claim  of  ownership  to  each  of  the  two  parties 
in  the  exchange. 

And  there  is  a  second  distinctive  peculiarity  in  that 
comparison  that  ends  in  Value,  namely,  the  two  things 
to  be  exchanged  are  not  compared  directly  with  each  other 


VALUE.  39 

at  all,  as  square  and  stick  are  compared,  but  in  the  light 
of  the  "  two  desires  "  with  which  we  are  already  familiar, 
and  in  that  of  the  "  two  estimates  "  resulting  therefrom. 
The  owner  of  the  wheat  desires  a  trowel,  and  the  owner 
of  the  trowel  desires  a  bushel  of  wheat ;  the  former  esti- 
mates the  effort  it  has  already  cost  him  to  procure  the 
wheat  in  a  sort  of  comparison  with  the  effort  that  it  would 
otherwise  cost  him  to  procure  the  trowel,  and  he  does  not 
trade  unless  the  trowel  seem  more  and  better  to  him  than 
does  the  wheat ;  the  latter  estimates  the  effort  it  has  cost 
him  to  procure  the  trowel  in  a  sort  of  comparison  with 
the  effort  it  would  cost  him  to  procure  otherwise  the  wheat 
that  he  wants,  and  he  does  not  trade  unless  the  wheat  then 
and  there  seem  more  desirable  than  the  trowel,  which  he 
already  has ;  and  these  two  relative  estimates  of  the  two 
owners  must  coincide,  that  is,  the  owner  of  the  wheat  must 
think  more  of  the  trowel  than  of  the  wheat,  and  the  owner 
of  the  trowel  must  think  more  of  the  wheat  than  of  the 
trowel,  before  these  two  parties  can  ever  trade.  So  of  all 
traffic  whatsoever. 

Now  the  third  and  last  distinctive  peculiarity  of  that 
kind  of  comparison  out  of  which  Value  emerges  is  this,  — 
an  action  is  necessary  in  order  to  complete  the  comparison. 
Desires  and  estimates  may  have  been  never  so  busy,  but 
no  Value  can  ever  be  born  until  an  outward  action  takes 
place  in  the  "  two  renderings "  of  our  former  analysis. 
Then  first  we  come  out  upon  plain  and  solid  ground.  We 
leave  the  play  of  the  subjective  elements,  which  yet  are 
essential  in  the  premises,  and  touch  firmly  objective  real- 
ities. The  trowel-smoker  passes  over  his  tool  in  the  sight  of 
men  to  the  wheat-grower  in  firm  possession  and  ownership,  and 
takes  in  return  for  it  from  him  the  grain,  ivhich  the  latter 
passes  over  to  the  former  for  the  sake  of  receiving  the  trowel. 
The  two  "satisfactions"  follow  as  a  matter  of  course,  and 


40  PRINCIPLES   OF   POLITICAL  ECONOMY. 

that  whole  transaction  as  a  commercial  exchange  and  as 
the  sole  subject  of  Political  Economy  is  ended. 

But  where  is  the  "Value,"  of  which  we  have  been  in 
search?  The  answer  is  easy  and  certain  and  unevadible. 
The  Value  is  in  the  Renderings,  and  nowhere  else.  The 
value  of  the  trowel  is  the  wheat,  that  is  actually  given  in 
exchange  for  it;  and  the  value  of  the  wheat  is  equally 
the  trowel,  for  the  sake  of  getting  which  the  wheat  was 
rendered.  What  was  the  Value  of  King  Hiram's  cedar- 
timbers  ?  The  oil  and  wheat  actually  returned  in  pay  for 
them.  What  was  the  Value  of  the  oil  and  wheat  sent 
northward  by  King  Solomon?  The  timbers  rendered  in 
direct  exchange  for  the  same.  This  is  not  merely  the  only 
possible  answer  to  the  question,  What  is  Value  ?  but  it  is 
also  a  perfectly  complete  and  satisfactory  answer.  Com- 
mon language  here  corresponds  exactly  with  scientific 
language.  "How  much  did  the  horse  cost?"  "One 
hundred  dollars."  The  dollars  have  nothing  whatever 
in  common  with  the  horse,  except  that  they  express  his 
Value  at  the  time ;  the  horse  has  nothing  in  common  with 
the  dollars,  except  that  it  expresses  the  Value  of  the  dol- 
lars at  the  time.  It  is  just  as  exact  to  say,  it  means 
precisely  the  same  thing  to  say,  the  dollars  are  worth  the 
horse,  as  to  say,  the  horse  is  worth  the  dollars. 

In  general  terms,  the  Value  of  anything  is  something 
else  received  in  return  for  it,  when  each  owner  renders  the 
one  for  the  sake  of  getting  the  other.  This  is  the  whole  of 
it,  so  far  as  any  specific  valuable  thing  is  concerned.  We 
shall  indeed  need  after  a  little,  and  shall  have  no  trouble 
in  finding, an  abstract  and  universal  definition  of  "  Value" 
as  an  abstract  and  scientific  term  perfectly  circumscribing 
the  field  of  Economics.  Here  and  now  we  are  dealing 
with  the  simpler  concrete  question,  What  is  the  value  of 
any  specific  valuable  thing?  The  unvarying  answer  is, 


VALUE.  41 

Some  other  specific  valuable  thing  already  exchanged  for 
the  first !  There  may  be  expected  value,  estimated  value, 
but  actual  value  there  is  none,  until'a  real  exchange  has 
settled  how  much  the  value  is.  The  value  of  anything  is 
something  else  already  exchanged  for  it.  Value  is  not 
simply  a  relation  subsisting  between  two  things,  the  result 
of  a  careful  comparison  between  them,  but  rather  an 
actual  fact  established  in  connection  with  them.  The  uni- 
versal formula  of  Value  is  quid  pro  quo,  in  which  formula 
quid  stands  for  one  of  the  valuables  and  quo  for  the  other, 
and  pro  unfolds  the  motive  of  each  owner  for  the  recipro- 
cal receiving  and  rendering. 

Here  a  caution  is  needful.  Because  nobody  can  tell 
what  the  value  of  anything  is  until  something  else  has 
been  put  over  against  it 'in  order  to  get  it  and  actually 
received  therefor,  and  because  the  only  possible  way  to 
express  the  value  of  either  is  in  the  terms  of  the  other,  — 
the  trowel  is  worth  the  wheat  and  the  wheat  is  worth  the 
trowel,  —  one  must  not  therefore  jump  to  the  conclusion 
that  the  value  of  either  is  settled  for  all  time  or  even  for 
any  future  time.  It  is  only  settled  for  this  time.  In 
Economics  as  in  Christianity,  Now  is  the  accepted  time. 
There  is  nothing  fixed  in  Values,  and  never  can  be  from 
the  nature  of  the  case,  because  Desires  are  personal  to 
individuals,  and  Efforts  fluctuate  with  times  and  persons, 
and  Estimates  that  wait  on  these  vary  from  necessity,  and 
the  Renderings  of  to-day  may  not  be  the  chosen  renderings 
of  other  persons  in  the  same  articles  to-morrow.  Value  is 
not  a  quality  at  all,  still  less  is  it  a  permanent  quality,  of 
anything ;  it  is  a  relation  established  between  two  things 
when  these  are  in  the  hands  of  two  given  persons;  but 
now  when  these  are  in  the  hands  of  two  different  persons, 
whose  views  are  pretty  sure  to  differ  from  the  former,  and 
a  new  relation  is  sought  to  be  established  between  these  in 


42  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  old  way  of  Estimates,  is  it  strange  that  a  new  balance 
is  struck,  and  Value  is  expressed  in  quite  different  terms  ? 

One  of  the  chief  charms  of  Political  Economy  is  the 
open  secret,  that  it  deals  not  with  rigidities  and  inflexible 
qualities  and  mathematical  quantities  and  the  unchanging 
laws  of  matter,  but  with  the  billowy  play  of  desires  and 
estimates  and  purposes  and  satisfactions,  all  of  which  are 
mental  states,  and  all  of  which  are  subject  in  the  general 
to  ascertainable  laws,  though  laws  of  a  quite  different  kind 
from  those  of  Mechanics.  Values  come  and  they  go. 
Within  certain  limits  and  under  certain  conditions  they 
may  be  anticipated  and  even  predicted,  but  never  with  the 
precision  of  an  eclipse  or  the  result  of  a  known  chemical 
combination.  There  is  a  useful  and  fascinating  Science  of 
Value,  as  we  shall  see  indubitably  by  and  by  in  the  present 
chapter ;  but  it  is  a  science  that  deals  primarily  with  per- 
sons and  only  secondarily  with  things,  with  mind  and  not 
with  matter,  with  the  general  undulations  of  the  sea  and 
not  with  the  crests  of  the  waves.  And  all  this  is  so, 
because  Values  are  relative,  because  the  announcements  in 
the  market-place  to-day  may  stand  listed  differently  to- 
morrow and  very  differently  next  year,  and  because  old 
values  may  disappear  altogether  and  many  new  ones  come 
in,  all  in  accordance  with  the  incessant  changes  in  the 
wants  and  labors  and  fashions  and  projects  of  men. 

We  are  now  in  a  good  place  to  see  once  for  all  the  sharp 
distinction  there  is  between  Utility  and  Value.  These 
two  are  often  confounded  to  the  deep  detriment  of  our 
Science ;  and  no  clear  thinking  is  possible  in  Economics 
without  drawing  this  line  sharp,  and  then  holding  it  fast; 
for  the  hazard  of  this  confusion  is  all  the  greater,  because 
Utility  is  always  connected  with  Value,  although  it  is  a 
totally  different  thing  from  Value.  We  will  see.  Utility 
is  the  simple  capacity  of  anything  to  gratify  the  desire  of 


VALUE.  43 

anybody.  This  is  at  once  the  etymological  as  well  as  the 
popular  signification  of  the  word.  It  is  derived  from  the 
Latin  utor,  to  make  use  of,  a  word  that  is  often  conjoined 
in  Latin  with  fruor,  to  enjoy ;  so  much  so,  that  the  two 
verbs  are  often  put  together,  utor  et  fruor,  and  also  often 
without  the  conjunctive,  utor  fruor.  Utility,  then,  is  a 
quality  of  innumerable  things.  Anything  that  is  good  for 
anything,  anything  useful,  anything  that  has  the  power  to 
still  the  desires  of  any  person,  has  Utility.  But  multi- 
tudes of  things  that  have  this  capacity  to  gratify  human 
desires  are  never  bought  and  sold,  and  therefore  can  have 
no  Value,  since  nobody  will  give  anything  for  them.  The 
air  we  breathe,  the  water  we  refresh  ourselves  with  from 
spring  or  brook,  the  light  of  the  sun  and  moon  and  stars, 
the  fragrance  of  the  flowers,  the  mountain  prospect  that 
delights  the  eye,  —  all  these,  and  thousands  more,  possess 
the  highest  utility,  but  no  value  whatsoever.  They  are 
free.  They  are  the  bounty  of  God.  They  are  never  bought 
and  sold.  They  are  a  vast  class  of  things  by  themselves, 
with  which  Political  Economy  as  such  has  nothing  to  do. 

Nevertheless  the  element  of  Utility  comes  into  every 
case  of  Value,  because  the  element  of  Desire  comes  into 
every  case  of  Value,  and  whatever  merely  satisfies  the 
Desire  of  any  person  is  Utility,  whether  that  capacity  be 
the  direct  gift  of  God  or  whether  the  Efforts  of  men  have 
been  employed  to  bring  it  about.  It  is  just  here  that  we 
see  the  precise  function  of  our  "  two  efforts  "  in  each  case 
of  Value,  in  distinction  from  mere  Utility  in  all  cases : 
much  of  utility  is  absolutely  free,  no  effort  of  men  having 
been  put  forth  to  secure  it,  for  example,  the  fragrance  of 
the  wild  rose;  much  more  of  utility  is  the  commingled 
bounty  of  Nature  and  the  gratuitous  effort  of  men,  for 
example,  the  fragrance  of  the  domestic  rose  brought  by 
the  householder  himself  into  his  own  yard  for  the  gratifi- 


44  PRINCIPLES    OF   POLITICAL   ECONOMY. 

cation  of  his  own  family;  while  by  much  the  most  of 
utility  is  commingled  free  gift  of  God  and  the  compen- 
sated efforts  of  men,  for  example,  the  fragrance  of  the 
bank  of  roses  cultivated  and  cared  for  by  the  hired  gar- 
dener. It  is  important  for  our  purposes  to  discriminate 
carefully  the  three  kinds  of  Utility :  (1)  what  is  wholly 
disconnected  from  the  efforts  of  men,  and  comes  freely 
from  the  hand  of  God;  (2)  what  is  mingled  with  the 
unpaid  efforts  of  men,  so  that  the  satisfaction  of  the  de- 
sire comes  partly  from  Nature  and  partly  from  unbought 
effort;  and  (3)  the  compound  utility  that  is  partly  free 
gift  and  partly  the  result  of  compensated  labor.  The  last 
is  the  only  kind  of  Utility  that  stands  in  any  connection 
with  Value. 

And  even  this  is  very  different  from  Value.  Utility  in 
all  three  of  its  forms  —  now  free,  now  onerous,  now  partly 
bought  —  is  always  a  quality  of  one  thing  by  itself,  going 
straight  to  the  satisfaction  of  some  desire,  and  there  an 
end.  It  is  simplicity  itself  compared  with  Value,  which 
is  always  a  resultant  of  several  things,  and  is  specifically 
a  relation  of  mutual  purchase  established  between  two 
"renderings,"  each  of  which  expresses  the  value  of  the 
other,  in  each  of  which  is  embodied  an  "  effort "  made  by 
each  of  the  two  "  persons  "  rendering,  and  each  of  which 
excites  a  "  desire  "  and  an  "  estimate  "  before  being  passed 
over  in  ownership  to  another,  and  a  "  satisfaction  "  after- 
wards. 

The  utility  in  every  valuable  rendering  comes  partly 
from  free  Nature  and  partly  from  compensated  effort,  but 
it  is  remarkable,  that  a  principle,  with  wThich  we  are  to 
become  very  familiar  later  on,  namely,  Competition,  elimi- 
nates for  the  most  part  from  all  influence  upon  Value  that 
portion  of  the  Utility  that  is  the  free  gift  of  God.  The 
great  Father  never  takes  pay  for  anything,  and  never 


VALUE.  45 

authorizes  anybody  to  take  pay  in  his  behalf ;  and,  more- 
over, has  arranged  things  so,  that  it  is  exceedingly  diffi- 
cult for  any  person  to  extort  anything  from  another  person 
on  the  strength  of  anything  that  God  has  made,  and  man 
has  not  improved.  Take,  for  example,  ten  horses  of  any 
general  grade,  brought  into  the  same  market  by  their  ten 
owners  for  sale.  These  men  did  not  make  these  horses, 
but  they  have  cared  for  and  trained  them,  or  at  least  have 
become  proprietors  by  purchase  or  otherwise  of  the  results 
of  such  care  and  training.  The  Utility  in  each  horse  is 
compound,  consisting  partly  of  what  God  has  done  for 
him  and  partly  of  what  man  has  done  for  him,  —  the  two 
parts  inextricably  interwoven,  —  and  all  ten  are  offered 
now  for  sale.  Each  of  the  owners  would  indeed  be  glad 
to  get  something  for  his  horse  on  the  ground  of  what  God 
has  done  to  make  him  sound  and  strong  and  fleet,  in  addi- 
tion to  a  fair  compensation  for  what  he  (and  his  prede- 
cessors) has  done  in  raising  and  breaking  him;  but  the 
cupidity  of  all  is  likely  to  be  thwarted  by  the  ultimate 
willingness  of  some  to  sell  their  horses  for  a  price  covering 
the  element  of  human  "  efforts  "  involved,  and  the  action 
of  these  tends  to  fix  a  general  rate  for  the  whole  ten,  and 
thus  the  gratuitous  element  is  eliminated  from  influence 
on  Value.  Even  if  the  ten  owners  should  combine  for  a 
higher  price,  there  are  doubtless  a  plenty  of  horses  of  that 
general  grade  elsewhere,  some  of  whose  owners  are  con- 
tent to  get  back  an  equivalent  for  their  own  and  others' 
"  efforts  "  expended  on  their  horses  ;  and  so  the  action  of 
these  tends  to  fix  the  general  price  for  horses  of  that  kind 
for  that  time  and  place  at  a  point  not  above  a  fair  estimate 
of  the  onerous  human  elements  involved ;  thus  throwing 
out  by  the  action  of  competition  all  effect  of  natural  Utility 
upon  the  Value  of  horses  then  and  there.  So  of  all  other 
products  of  that  kind. 


46  PRINCIPLES   OF   POLITICAL  ECONOMY. 

It  is  true,  that  in  certain  unique  cases,  in  which  compe- 
tition has  little  or  no  play,  because  there  is  only  one  or 
a  very  few  owners  of  such  unique  products,  one  cannot 
certainly  say  that  free  Utility  may  not  influence  the  Value 
to  lift  it  above  the  gauge  of  human  efforts  involved ;  but 
such  cases  are  rare,  and  relatively  unimportant ;  and  the 
tendency  is  immensely  strong,  under  the  natural  and  bene- 
ficial condition  of  tilings,  for  Values  to  graduate  themselves 
through  the  reciprocal  estimates  and  renderings  of  com- 
merce, down  to  the  actual  and  onerous  contribution  of  men 
to  that  Utility  that  underlies  Value. 

Thus  we  are  brought  again  and  again  from  differing 
points  of  view  to  the  "  two  renderings "  as  central  and 
determinative  in  Value,  and  also  more  specifically  to  the 
"  two  efforts  "  of  persons  rather  than  any  free  contribution 
of  Nature  as  constituting  that  portion  of  the  compound 
Utility,  whose  function  it  is  to  gratify  the  "  two  desires  " 
that  precede  the  realization  of  Value,  —  that  portion  of  the 
utility  in  any  rendering  that  must  be  compensated  for  by 
the  other  rendering.  Now  in  order  to  reach  in  a  moment 
more  our  final  definition  of  "Value,"  a  definition,  it  is 
believed,  that  will  cover  all  the  cases  and  take  the  life  out 
of  endless  disputes,  we  need  a  scientific  term  to  carry  easily 
and  exactly  the  meaning  of  any  economic  rendering.  Let 
that  word  be  SERVICE.  We  must  have  it  in  its  generalized 
meaning,  to  cover  the  renderings  of  all  the  three  kinds,  in 
distinction  from  the  term  "personal  services,"  which  we 
have  already  used  and  shall  continue  to  use  to  designate 
one  class  only  of  things  exchanged,  in  contradistinction 
to  "commodities  "  and  to  "credits,"  the  other  two  classes. 

VALUE  is  THE  RELATION  OF  MUTUAL  PURCHASE  ESTAB- 
LISHED BETWEEN  TWO  SERVICES  BY  THEIR  EXCHANGE. 

We  offer  this  definition  of  "  Value  "  to  our  readers  in 
much  confidence,  that  they  will  find  it  exact  and  adequate 


VALUE.  47 

and  altogether  trustworthy.  No  one  of  them,  however,  is 
precluded  from  attempts  to  improve  it  in  breadth  and 
brevity  and  beauty;  and  all  are  invited  to  pick  logical 
flaws  in  it,  whether  of  ambiguity  or  superfluity  or  defi- 
ciency. Many  minds  and  many  hands  in  many  lands  have 
left  their  impress  on  parts  of  this  definition,  for  example, 
Aristotle  in  Greece  arid  Bastiat  in  France  and  Macleod  in 
Great  Britain ;  the  present  writer  thinks,  that  he  has  bet- 
tered the  definition  of  Bastiat,  namely,  "  Value  is  the  rela- 
tion of  two  services  exchanged"  by  precisely  defining  the 
relation  as  one  of  mutual  purchase ;  and  he  is  sure,  that 
he  has  improved  the  definition  of  Macleod,  namely,  "  The 
value  of  any  economic  quantity  is  any  other  economic  quan- 
tity for  which  it  can  be  exchanged"  by  making  his  definition 
at  once  more  abstract  and  more  general  and  more  definite, 
and  also  by  escaping  the  slight  implication  in  the  word, 
"  quantity,"  that  only  material  things  are  exchanged  in 
economics. 

The  immense  importance  of  securing  first  a  clear  and 
correct  Definition  of  "Value,"  which  is  the  foundation- 
word  and  the  circumference-word  of  Political  Economy, 
and  then  of  using  that  term  and  all  other  scientific  terms 
in  the  Science  in  their  defined  senses  only,  will  certainly 
be  appreciated  by  those  who  have  wandered  in  the  wide 
wilderness  of  the  discussions  on  the  undefinable  word, 
"  Wealth,"  and  especially  by  those  who  have  reflected 
most  upon  the  vast  and  illimitable  significance  of  eco- 
nomic Exchanges  on  the  welfare  of  mankind.  Associate 
Justice  Miller  of  the  Supreme  Court  of  the  United  States, 
not  an  Economist  in  the  technical  sense,  referred  in  1888, 
in  words  that  are  worth  remembering,  to  "  the  philosophical 
maxim  of  modern  times,  that  of  all  the  agencies  of  civiliza- 
tion and  progress  of  the  human  race  commerce  is  the  most 
efficient"  In  August  of  that  year  John  Sherman  of  Ohio, 


48  PRINCIPLES   OF   POLITICAL  ECONOMY. 

a  man  far  enough  from  being  a  technical  Economist,  said 
in  the  Senate  of  the  United  States,  that  "it  is  almost  a 
crime  against  civilization  "  to  maintain  commercial  barriers 
between  Canada  and  the  United  States. 

There  were  tokens  a  plenty  in  the  year  of  Grace  just 
referred  to,  that  the  Science  of  Value  in  all  the  lands  of 
the  civilized  world,  and  particularly  in  the  United  States, 
was  drawing  to  itself  a  new  and  more  popular  esteem.  It 
was  seen  more  clearly  and  felt  more  deeply  than  ever 
before,  that  this  science  has  a  weighty  word  for  every  man 
and  woman  and  child  in  the  world ;  that  there  are  certain 
Rights  in  every  one  inherent  and  inalienable  to  buy  and 
sell  for  his  own  advantage  ;  that  most  if  not  all  of  the 
Governments,  under  the  lead  of  comparatively  few  selfish 
and  powerful  men,  were  infringing  upon  these  Rights,  and 
robbing  under  the  forms  of  Law  the  masses  of  their  citi- 
zens to  immense  amounts  for  the  special  benefit  of  these 
very  men;  that  the  only  sure  defences  of  the  people 
against  these  abuses  of  all  kinds  were  in  the  maintenance 
and  diffusion  of  the  scientific  and  consequently  disinter- 
ested principles  and  maxims  of  a  sound  Political  Econ- 
omy ;  that  such  a  science  was  only  friendly  to  the  broadest 
rights,  to  universal  gains,  to  illimitable  increase  in  human 
comforts  and  powers,  to  international  fellowship,  to  peace 
on  earth  and  good-will  among  men;  that,  accordingly,  a 
science  of  such  scope  and  tendencies  must  be  encouraged 
and  cultivated  and  improved ;  that  what  had  been  crude 
in  it,  and  narrow,  and  merely  national,  must  be  sloughed 
off ;  that  the  English  and  insular  and  special  speculations 
of  a  century  ago,  which  regarded  "  Wealth  "  as  consisting 
of  material  things  only,  excepting  however  considerable 
portions  of  Adam  Smith's  immortal  book,  were  antiquated 
and  unusable ;  that  the  Science  had  really  moved  into  a 
broader  and  still  a  well-circumscribed  field,  new  and  more 


VALUE.  49 

permanent  foundations  were  being  laid,  and  fresh  contri- 
butions from  all  countries  should  be  welcomed ;  and  that 
the  time  had  fully  come,  when  the  accepted  truths  of  this 
Science,  like  those  of  the  other  developed  sciences,  should 
be  practically  and  steadily  applied  to  the  betterment  of 
mankind.  Under  these  broadening  and  inspiriting  and 
uplifting  conditions  Political  Economy,  as  never  before, 
thanked  God  and  took  courage. 

3.  Having  now  a  satisfactory  definition  of  Value,  and 
knowing  accordingly  just  what  Valuables  are  in  clear  dis- 
tinction from  all  other  things  in  the  world,  we  must 
examine  with  some  care  two  or  three  of  the  most  general 
facts  and  laws  and  limits  of  Value,  before  we  pass  in  the 
next  following  chapters  to  study  in  detail  each  of  the  three 
kinds  of  Valuables,  namely,  material  Commodities,  per- 
sonal Services,  commercial  Credits. 

(a)  Since  Value  in  general  is  the  relation  of  mutual 
purchase  between  two  Services,  and  consequently  the  spe- 
cific value  of  either  can  only  be  expressed  by  the  other,  — 
one  Valuable  being  always  measured  by  the  Valuable 
exchanged  against  it,  —  it  follows  as  a  matter  of  course 
that  such  a  thing  as  a  general  Rise  or  Fall  of  Valuables 
is  an  impossibility.  The  rise  of  one  valuable  involves  of 
necessity  a  fall  in  the  other,  as  the  fall  of  one  implies  the 
rise  of  the  other.  If  the  articles  exchanged  be  bushels  of 
wheat  and  dollars  of  silver,  and  if  a  bushel  buys  a  dollar 
to-day,  then  wheat  is  worth  a  dollar  a  bushel ;  but  if  wheat 
rises  next  week,  so  that  a  dollar  will  not  buy  a  full  bushel, 
that  is  precisely  the  same  thing  as  saying,  that-  the  dollar 
has  fallen  in  its  purchasing-power  as  compared  with  the 
wheat.  Such  specific  changes  in  the  purchasing-power  of 
one  Valuable  over  another  are  incessant  throughout  the 
commercial  world,  and  a  merchant's  sagacity  consists  in 
anticipating  these  so  far  as  possible  and  in  availing  himself 


50  PRINCIPLES   OF   POLITICAL  ECONOMY. 

of  them  alertly  and  prudently;  but  each  one  of  us  must 
needs  see  clearly  and  hold  firmly  in  mind,  that  each  fall  in 
the  purchasing-power  of  a  Valuable  means  a  corresponding 
rise  of  power  in  the  other  Valuable,  —  if  the  first  buys 
more  of  the  second  than  before,  then  the  second  must  buy 
less  than  before  of  the  first ;  and,  consequently,  a  general 
rise  of  Valuables  is  a  contradiction  in  terms,  and  so  of 
course  is  a  general  fall  of  Valuables. 

This  brings  us  to  Price.  Price  is  Value  reckoned  in 
money ;  and  this  is  the  only  difference  in  the  meaning  of 
the  two  terms.  When  one  valuable  is  sold  against  another, 
even  when  one  of  the  two  is  money,  each  is  the  Value  of 
the  other :  Value  is  the  general  and  universal  term  in 
Economics.  When  any  other  valuable  is  sold  against 
money,  the  amount  of  money  it  buys  is  called  its  Price : 
Price  is  a  specific  and  restricted  term  in  Economics.  Since 
we  shall  study  Money  thoroughly  in  a  later  chapter,  and 
there  explain  the  origin  and  extent  of  its  functions  through- 
out, it  is  only  in  order  to  remark  here,  that  it  is  for  con- 
venience' sake,  that  is,  to  make  easy  the  comparison  of 
valuables  one  with  another,  that  Value  in  commerce  is 
commonly  reduced  to  Price.  Money  becomes  a  sort  of 
measure,  by  means  of  which  to  compare  all  other  valuables 
with  each  other.  In  order  to  ascertain  the  Price  of  a  Val- 
uable, it  only  needs  to  be  sold  once  against  money ;  but 
in  order  to  ascertain  the  Value  of  a  Valuable,  it  would 
need  to  be  sold  once  against  all  other  valuables  whatso- 
ever. This  last  is  clearly  impracticable;  and  so  Value 
for  practical  purposes  is  reduced  to  Price.  The  General 
is  made  Particular  for  convenience.  Hence  we  have 
"  Prices  current,"  but  never  Values  current. 

Now  it  will  be  plain  to  all,  how  there  may  easily  be  and 
often  is  a  general  rise  or  fall  of  Prices  while  a  rise  or  fall 
of  Values  is  impossible.  Price  is  a  relative  word  as  much 


VALUE.  51 

as  Value  is,  but  it  does  not  relate  to  so  many  things. 
Price  is  specific,  and  Value  universal.  Both  equally 
involve  buying  and  selling,  but  one  sale  of  a  single  valuable 
against  money  leads  to  Price,  while  ten  thousand  sales  of 
the  same  valuable  against  other  than  money  would  not 
conduct  to  complete  Value.  That  would  require  a  sale  of 
this  valuable  against  all  other  valuables  in  the  world,  and 
a  complete  statement  of  the  comparative  results. 

General,  or  at  least  universal,  changes  of  Prices  in  rise 
or  fall  in  any  given  country  are  due  to  general  and  great 
changes  in  the  Money  current  there.  Subordinate  changes 
in  other  valuables,  money  being  supposed  to  remain  uni- 
form, will  of  course  vary  their  Prices ;  but  it  is  impossible 
that  such  changes  should  affect  equally  or  even  generally 
all  the  various  and  numberless  valuables  of  a  whole  coun- 
try ;  while  some  are  coming  easier,  others  are  coming 
harder,  while  some  are  more  desired  than  formerly  others 
are  less  desired,  and  this  will  bring  in  of  course  altered 
prices,  some  higher  and  some  lower ;  but  a  general  rise  of 
all  prices,  or  a  general  fall  in  the  same,  can  only  come 
about  by  great  changes  of  some  kind  in  the  circulating 
medium,  that  is,  the  money,  of  the  country.  For  example, 
in  the  United  States,  between  1862  and  1878  inclusive,  a 
government  paper  promise,  called  greenbacks,  was  the  cur- 
rent money  of  the  country ;  owing  to  its  excessive  issue, 
and  to  some  doubt  in  the  minds  of  the  people  whether  the 
paper  would  ever  be  redeemed  in  gold,  it  soon  became 
depreciated  as  compared  with  gold,  the  premium  on  which 
over  the  paper  money  varied  at  different  times  from  1  to 
185  per  centum;  as  all  other  valuables  were  then  sold 
against  greenback  money,  which  had  declined,  their  prices 
naturally  rose  in  some  sort  of  proportion  as  the  medium 
fell ;  general  values  remained  much  as  before,  but  general 
prices  were  much  enhanced ;  and  when,  after  the  resump- 


52  PRINCIPLES   OF   POLITICAL   ECONOMY. 

tion  of  specie  payments  in  January,  1879,  gold  became 
again  the  standard  medium,  general  prices  declined  in  full 
accordance  with  the  same  universal  principle  reversed. 

(b)  Prices,  as  we  have  now  seen,  are  only  a  subordinate 
form  of  Values :  the  universal  law  that  regulates  all  the 
variations  of  them  both,  within  certain  fixed  limits  to  be 
examined  shortly,  is  called  the  LAW  OF  SUPPLY  AND 
DEMAND.  This  is  perhaps  the  most  comprehensive  and 
beautiful  law  in  Political  Economy.  We  shall  look  at  it 
now  only  in  outline :  the  filling  in  will  be  the  pastime  and 
profit  of  all  that  is  to  come. 

"Demand"  is  a  technical  term  in  Economics,  and  ac- 
cordingly needs  to  be  defined,  and  then  always  used  in  its 
defined  sense.  So  is  "  Supply."  Demand  is  the  "  desire  " 
of  a  "person"  for  something  in  the  hands  of  another  person, 
coupled  with  the  possession  of  something  else  capable  of 
buying  that  something.  Mere  desire  has  no  function  in 
Political  Economy :  hungry  and  penniless  children  passing 
by  the  stalls  of  a  great  market,  have  no  influence  on  the 
prices  or  values  of  the  viands,  on  which  they  cast  their 
eager  glances :  only  desires  accompanied  by  "  efforts " 
competent  to  excite  the  desires  and  to  pay  for  the  efforts 
of  another  are  a  Demand.  Supply  is  the  same  thing 
as  Demand  looked  at  from  the  other  side.  Supply  is  the 
correlative  of  Demand.  The  Supplyer  is  a  person,  who 
has  in  his  possession  something  desired  by  the  Demander, 
and  who  in  turn  desires  something  in  the  hands  of  the 
Demander,  when  both  are  willing  to  exchange  their  "  ren- 
derings." There  is  no  economical  difference  in  the  position 
of  the  Demander  and  the  Supplyer.  Each  is  equally  a 
Demand  and  a  Supply  with  reference  to  the  other.  It  is 
the  old  and  ever-recurring  case  of  Value,  the  propositions 
being  here  stated  in  their  most  universal  terms. 

For   simplicity's    sake,  however,   and   for  convenience, 


VALUE.  53 

without  altering  the  substance  of  the  definitions  a  parti- 
cle, the  valuables  when  looked  at  as  a  Demand  are  practi- 
cally reduced  in  all  markets  to  their  equivalent  in  Money, 
so  that  Money  offered  or  ready  to  be  offered  against  any 
other  exchangeable  thing  constitutes  what  is  called  in 
commercial  language  a  Demand;  and  this  is  sufficiently 
accurate  as  well  as  current,  although  it  must  always  be 
remembered  that  each  valuable  in  any  market  in  reality 
constitutes  a  Demand  for  another,  and  is  equally  a  Supply 
in  reference  to  that  other.  Supply  is  any  exchangeable 
thing  offered  for  sale  'against  any  other  exchangeable  thing. 
For  example,  corn  in  any  market  is  at  bottom  a  Demand 
and  a  Supply  at  once  for  every  valuable  offered  in  that 
market  at  that  time,  say,  ploughs  for  one  thing ;  but  in 
the  talk  of  the  market,  the  presence  of  corn  there,  or  its 
being  ready  to  be  immediately  brought  there  and  offered 
in  exchange  for  money,  constitutes  what  is  called  a  Supply 
of  corn ;  money  offered,  or  ready  to  be  offered,  in  exchange 
for  corn,  constitutes  what  is  called  a  Demand. 

On  this  account  Money  seems  to  play  a  much  more 
important  part  in  trade  than  it  actually  does  play;  the 
corn  is  sold  in  the  terms  of  money,  that  is,  for  dollars 
and  cents  as  denominations  of  Value;  convenience  dic- 
tates such  a  reduction  of  general  Value  to  this  particular 
form  of  it,  because  this  is  found  to  make  easier  the  ulti- 
mate exchange ;  but  there  is  not  one  chance  in  a  hundred, 
as  trade  runs  nowadays  in  the  larger  markets,  that  this 
seller  of  corn  will  take  his  pay  for  it  in  actual  money 
whether  metallic  or  paper ;  money  is  never  an  ultimate 
product,  but  only  an  intermediate  one ;  this  seller  of  corn 
wants  perhaps  a  plough  or  some  other  farming  implement, 
and  ten  to  one  he  will  take  for  his  corn  a  bill  or  order  in 
some  form  on  the  seller  of  ploughs,  and  it  will  be  corn 
for  a  plough,  each  becoming  a  Demand  and  a  Supply  for 


54  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  other,  though  money  or  rather  its  denominations  has 
acted  as  an  agent  in  bringing  about  the  final  trade ;  the 
details  of  all  this  in  manner  and  result  will  be  as  plain  as 
day  when  we  come  to  study  "  Money  "  and  "  Credits  "  in 
following  chapters ;  while  the  essential  point  to  be  noted 
here  is,  that  all  Valuables  are  a  Demand  and  Supply 
as  towards  one  another.  In  other  words,  the  world  over, 

A  MARKET  FOR  PRODUCTS  IS  PRODUCTS  IN  MARKET. 

What,  then,  is  Market- Value  returned  in  the  terms  of 
Money?  And  what  is  the  universal  Law  of  it? 

Market-value  is  the  present  rate  of  exchange  between 
dollars  and  cents  and  any  other  valuable,  that  can  be  fairly 
graded  in  a  class  made  up  of  valuables  similar  to  itself ; 
and  the  law  of  market-value  is  the  equation  of  Supply  and 
Demand,  that  is,  the  current  rate  is  adjusted  when  money 
enough  is  offered  to  take  off  within  the  usual  times  the 
valuables  on  hand  and  offered  for  sale.  If  Demand  for 
any  reason  become  quickened,  arid  the  Supply  be  not 
increased,  there  is  competition  among  buyers  for  the  stock 
in  market,  and  the  market-rate  rises  or  tends  to  rise.  If, 
on  the  other  hand,  Demand  become  sluggish,  the  Supply 
remaining  the  same,  there  is  a  like  competition  among  the 
sellers  to  dispose  of  their  stock,  and  market-value  sinks 
or  tends  to  sink.  So  far  it  is  the  simple  action  on  Value 
of  the  element  of  one  "  desire  "  expressing  itself  through 
a  money-demand,  the  elements  of  "  desire  "  and  of  "  efforts  " 
expressing  themselves  through  Supply  being  supposed  to 
remain  stable,  and  the  pulsations  in  the  market-rate  follow 
accordingly. 

How  far  can  this  simple  action  go  ?  Demand  increas- 
ing, Supply  remaining  as  before,  market-rate  rises  :  how  far 
can  it  rise  from  this  cause  ?  Here  we  must  remember  that 
Demand  not  only  acts  upon  Value,  but  also  Value  reacts 
upon  Demand.  As  Value  rises,  the  number  of  those  whose 


VALUE.  55 

means  or  inclinations  enable  them  to  purchase  at  the  new 
rate  is  constantly  diminished :  there  are  ten  persons  who 
may  wish  an  article  at  one  dollar,  of  whom  not  over  four 
will  wish  it  at  two  dollars,  and  perhaps  only  one  at  three 
dollars.  Every  rise  in  market-rate  then,  under  the  impulse 
of  enlarged  Demand,  tends  to  cut  off  a  part  of  that  De- 
mand, that  is,  to  lessen  the  number  of  those  who  will  pur- 
chase at  the  increased  price ;  and  the  rate  consequently 
can  only  rise  to  that  point,  whatever  it  be,  where  an  equal- 
ization takes  place  between  the  Supply  and  Demand, 
between  the  quantity  of  flour,  for  example,  offered  at  the 
enhanced  rate,  and  the  quantity  of  money  in  the  hands  of 
those  willing  to  exchange  it  for  flour  at  the  higher  rate. 

Just  so  in  the  reverse  way,  when  Demand  is  slackened, 
Supply  continuing  as  before,  the  market-rate  is  sure  to 
decline ;  but  declining  rates  tend  strongly  in  turn  to  in- 
crease the  demand  by  bringing  the  article  within  the  range 
of  a  larger  number  of  purchasers ;  Society  is  like  a  pyra- 
mid, each  lower  stratum  is  broader  than  the  one  above; 
and  so  the  decline  of  rates  under  a  weaker  Demand  is 
arrested  by  a  stronger  Demand  coming  from  a  wider  circle 
of  buyers,  and  a  new  market-rate  is  determined  at  the 
point  of  equalization  between  the  new  Demand  and  the 
old  Supply.  Thus  every  rise  or  fall  of  Demand  tends  to 
check  itself,  and  will  check  itself  in  all  the  great  classes  of 
valuables,  even  without  any  variations  in  the  Supply; 
everything  oscillates  under  the  variations  of  Demand; 
while  the  point  of  stable  equilibrium,  if  we  may  use  the 
expression  of  anything  so  unstable  as  Market-value,  is 
always  the  equation  of  Supply  and  Demand. 

But  all  considerable  variations  of  market-rate  are  com- 
monly checked  at  an  earlier  point  than  the  one  just  indi- 
cated by  variations  in  the  Supply.  A  sharper  Demand 
carries  up  the  market-rate,  and  a  higher  market-rate  com- 


56  PKINCIPLES   OF   POLITICAL  ECONOMY. 

monly  acts  upon  Supply  to  enlarge  it,  and  an  increased 
Supply  too  checks  the  rise  of  market-rate.  Per  contra,  a 
slacker  Demand  lowers  market-rates,  and  lowered  rates 
often  lessen  the  Supply  by  the  action  of  holders  arid  spec- 
ulators, —  holders  withdrawing  their  stock  for  a  better 
market,  and  speculators  buying  now  when  the  article  is 
cheap  to  store  away  until  it  shall  be  dearer.  Thus  rise  of 
market-rate  from  Demand  growing  stronger  is  checked 
doubly ;  first,  by  curtailing  the  number  of  would-be  buyers, 
and  second,  by  enlarging  the  Supply :  the  fall  of  market- 
rate  from  Demand  growing  weaker  is  checked  doubly ; 
first,  by  increasing  the  number  of  consumers  of  a  now 
cheaper  article,  and  second,  by  a  diminution  of  Supply  by 
the  action  of  holders  and  speculators.  This  double  and 
harmonious  working  of  the  law  of  the  Equalization  of 
Demand  and  Supply  is  one  of  the  most  comprehensive  and 
beautiful  laws  in  Political  Economy. 

Besides  this,  we  must  note  the  effect  on  Value  of  condi- 
tions in  Supply  only,  Demand  being  supposed  to  continue 
steady.  There  are  three  classes  of  valuables  in  respect  to 
the  law  of  their  Supply.  (1)  When  the  Supply  is  scant, 
and  cannot  be  increased  at  all,  as  is  the  case  with  choice 
antiques  and  certain  gems  and  paintings  by  the  old  mas- 
ters, their  value  may  rise  to  any  point  under  the  action  of 
Demand,  there  is  and  can  be  in  such  cases  no  market-rate, 
and  the  individual  value  will  be  struck  at  the  point  of 
equalization  of  the  demand  then  existing  with  the  supply 
there  offered.  For  instance,  the  French  Government  paid, 
in  1852,  615,300  francs  for  a  painting  by  Murillo,  which 
had  belonged  to  Marshal  Soult.  The  genuine  Murillos 
are  comparatively  few,  and  their  number  cannot  be  in- 
creased, and  their  merit  causes  a  strong  "desire"  to  possess 
them,  and  their  value  rises  in  connection  with  the  limita- 
tion of  Supply  to  a  point  beyond  which  no  one  purchaser 


VALUE.  57 

can  be  found.  When  this  painting  was  offered  in  Paris 
for  sale,  many  "persons"  of  course  were  anxious  to  buy  it, 
there  was  but  one  painting,  there  could  be  but  one  pur- 
chaser, value  rose  under  the  influence  of  a  sharp  Demand, 
the  rise  could  not  be  checked  by  any  duplication  of  the 
Supply,  and  the  equation  was  complete  and  the  value  for 
that  sale  determined  when  one  party  distanced  all  other 
competitors  and  offered  a  sum  greater  than  any  one  else 
would  give.  The  same  principle  controls  all  sales  of  this 
sort,  and  is  practically  the  principle  of  the  Auction,  whose 
very  name  indicates  its  nature  in  this  regard,  that  Demand 
becomes  restricted  to  one  party,  and "  that  the  highest 
bidder. 

(2)  When  the  Supply,  instead  of  being  absolutely 
limited,  can  only  be  increased  with  difficulty  or  after  the 
lapse  of  time,  similar  but  less  extreme  results  will  be 
observed.  Let  us  suppose,  that  pianos  are  selling  in  some 
rural  community  at  |300  each,  that  there  are  twenty  persons 
in  the  place  who  want  a  piano  immediately,  that  there  are 
but  fifteen  pianos  on  hand,  and  that  the  number  cannot  be 
increased  for  half  a  year.  The  market-rate  will  certainly 
rise  above  $300.  How  much  above  ?  To  that  point,  at 
which  only  fifteen  of  the  twenty  will  be  willing  to  pur- 
chase at  the  new  rate.  The  equation  of  Supply  and 
Demand  will  be  reached  by  a  rising  rate  which  cuts  off 
five  competitors.  This  is  the  principle,  working  only 
roughly  in  practice  through  the  estimates  and  good  judg- 
ment of  dealers  and  purchasers.  A  better  illustration  of 
this  second  class  of  cases  is,  perhaps,  the  Grains  and  other 
agricultural  products.  When  these  have  been  gathered, 
there  is  no  more  home  supply  for  a  year ;  and  any  defi- 
ciency in  the  crops  will  raise  their  market-rate,  not  at  all 
in  the  ratio  of  the  deficiency,  but  according  to  the  relations 
of  the  diminished  Supply  to  a  new  Demand.  Since  the 


58  PRINCIPLES   OF   POLITICAL   ECONOMY. 

abolition  of  the  Corn-Laws  in  England  in  1846,  and  the 
resulting  ease  of  grain-imports  from  abroad,  a  deficiency 
of  home  crops  has  no  such  effect  on  the  price  of  cereals  as 
it  had  before  that  time ;  when,  according  to  Tooke's  His- 
tory of  Prices,  an  expected  falling-off  of  one  third  in  the 
crops  often  doubled  and  sometimes  quadrupled  the  usual 
prices ;  which  shows  that  the  world  ought  to  become  one 
country  in  respect  to  all  food  supplies,  as  indeed  happily  it 
is  now  for  the  most  part,  each  country  allowing  them  to  be 
distributed  freely  everywhere  in  accordance  with  this  law 
of  Demand  and  Supply.  Speculation  is  more  busy  in  grain, 
in  cotton,  and  in  such  things  generally,  because  a  new 
Supply  can  only  be  had  once  a  year ;  early  information  is 
eagerly  sought  at  the  trade  centres  in  regard  to  the  pros- 
pects of  the  growing  crops,  and  has  its  influence  one  way 
or  the  other  on  current  prices ;  but  the  world  is  so  wide 
and  all  the  parts  of  it  now  so  closely  connected  together 
by  steamship  and  telegraph,  that  the  prices  of  the  great 
food  staples  are  remarkably  uniform  over  the  earth,  and 
Speculation  has  not  the  chance  it  once  had  to  count  and 
"  corner." 

(3)  In  the  only  remaining  and  by  far  most  comprehensive 
class  of  cases,  in  which  the  Supply  of  Commodities  and 
Services  and  Credits  can  be  readily  and  indefinitely 
increased  to  meet  enhanced  Demand,  and  easily  with- 
drawn from  market  and  stored  when  Demand  declines, 
each  rise  and  fall  of  market-rate  tends  to  be  speedily 
checked  through  the  mere  action  of  Supply;  and  the 
doubly  and  harmoniously  working  Law  but  just  now 
referred  to  keeps  Value  in  this  class  of  cases  comparatively 
steady  all  over  the  world. 

(c)  It  only  remains  in  this  branch  of  the  general  dis- 
cussion on  Value,  to  indicate  the  Limits,  within  which  all 
oscillations  of  Value  are  contained.  These  extreme  limits 


VALUE.  59 

are  specially  to  be  found  in  the  element  of  Value  which 
we  have  called  "  Efforts."  We  have  clearly  seen  already, 
that  "efforts"  (or  Labor)  are  not,  as  has  been  often 
asserted,  the  cause  of  Value,  but  only  one  of  several  con- 
stituent causes ;  if  Labor  be  asserted  to  be  the  sole  cause 
of  Value,  the  inquiry  becomes  instantly  pertinent,  what 
is  the  cause  of  the  value  of  Labor;  yet  we  know,  that 
"  efforts  "  always  stand  in  preconnection  with  value,  and, 
the  mutual  "  desires "  being  presupposed,  there  must 
always  be  Limitations  of  Value  lying  partly  in  the  efforts 
made  by  the  person  serving  and  partly  in  the  efforts  saved 
to  the  person  served.  In  every  valuable  transaction,  each 
of  the  parties  is  reciprocally  serving  and  served,  and  it  is 
clear,  that  the  two  would  not  exchange  "renderings" 
unless  the  service  which  each  renders  to  the  other  is  less 
onerous  than  the  "efforts"  which  each  would  have  to 
make  if  each  served  himself  directly.  For  example,  it 
takes  a  certain  effort  for  me  to  bring  water  from  the  spring 
for  the  use  of  my  family ;  I  am  willing  to  pay  a  neighbor 
for  bringing  it  for  me,  but  I  should  not  be  willing  to  make 
a  greater  effort  for  him  in  return  than  the  effort  is  to 
bring  it  myself ;  neither  should  I  be  willing  to  make  an 
effort  for  him  in  return  which  I  regarded  just  as  onerous 
as  the  bringing  the  water  nryself ;  and  unless  there  is  some 
service  which  he  will  accept  less  onerous  to  me  than  that, 
I  shall  continue  to  bring  the  water.  On  the  other  hand, 
he  will  surely  not  render  the  service  to  me  of  bringing  the 
water,  unless  it  be  less  onerous  to  him  to  do  so  than  the 
doing  that  for  himself  which  I  am  ready  to  do  for  him. 

This  principle,  applicable  to  all  exchanges  whatsoever, 
draws  on  the  one  side  the  outermost  line,  beyond  which 
Value  never  can  pass.  It  may  be  asserted  with  confidence, 
that  no  person  will  ever  knowingly  make  a  greater  effort 
to  satisfy  a  desire  through  exchange,  than  the  effort  need- 


60  PKINCIPLES  OF  POLITICAL  ECONOMY. 

ful  to  satisfy  it  without  an  exchange.  Therefore,  it  fol- 
lows, that  all  exchanges  lessen  onerous  efforts  among  men 
relatively  to  the  satisfaction  of  their  desires,  and  tend  to 
lessen  these  more  and  more  as  exchanges  multiply  in  num- 
ber and  variety,  otherwise  the  exchanges  would  not  take 
place. 

Moreover,  within  this  outermost  Limit  of  Value,  which 
is  made  by  the  comparative  onerousness  of  the  respective 
"  efforts,"  there  is  a  second  limitation  of  a  similar  kind  to 
be  found  specially  in  the  element  which  we  have  called 
"  estimates."  The  estimate  of  each  exchanger  is  based  at 
once  on  his  own  effort  about  to  be  rendered  and  on  his 
desire  for  the  return  service  offered :  the  element  of  effort 
in  the  case  of  both  being  considered  for  the  time  as  fixed, 
Value  will  vary  according  to  the  varying  desire  of  each 
for  the  return  service  of  the  other,  affecting  of  course  the 
"  estimate  "  of  each,  and  furnishing  also  a  secondary  Limit 
of  Value.  To  pursue  the  same  illustration,  suppose  I 
regard  the  effort  required  to  bring  the  water  myself  as  10 ; 
that  there  are  several  persons,  who  would  be  glad  to  do 
that  service  for  me  at  a  return  service  which  I  consider  as 
8 ;  that  there  are  two  persons,  who  are  willing  to  do  it  for 
something  which  I  estimate  at  6 ;  and  that  there  is  only 
one  person,  who  will  do  it  for  a  return  service  which  I 
regard  as  5.  It  is  evident,  that  the  extreme  limits  of  that 
service  to  me  are  10  and  5.  Higher  than  10  it  cannot  go, 
lower  than  5  it  cannot  sink.  But  why  have  I  before  me 
three  possible  classes  of  Tenderers  ?  Because  the  persons  in 
each  class,  while  estimating  their  own  efforts  alike  in  the 
proposed  rendering  to  me,  have  varying  "  desires "  as 
towards  a  possible  rendering  from  me  to  them,  and  conse- 
quently put  differing  "  estimates  "  upon  the  possible  tran- 
sactions. The  man  who  will  bring  the  water  for  5  has  for 
some  reason  (no  matter  what)  a  stronger  desire  for  the 


VALUE.  61 

return  than  anybody  else,  and  I  should  of  course  employ 
him  so  long  as  he  would  serve  me  on  those  terms ;  if  he 
decline  the  exchange,  I  fall  back  on  one  of  the  two  persons 
in  the  class  above  him,  and  Value  rises  now  from  5  to  6, 
and  will  be  steadier  there  than  it  was  before ;  if  each  of 
these  in  turn  should  give  out,  I  should  fall  back  upon  the 
larger  class  ready  to  serve  me  at  8,  and  Value  would  be 
very  steady  at  that  rate,  because  there  are  numerous  com- 
petitors; and  by  no  possibility  could  it  rise  above  10. 
Between  10  and  5  the  value  may  fluctuate,  but  it  cannot 
overpass  these  Limits  in  either  direction  under  existing 
circumstances. 

Therefore  we  may  conclude,  that  the  maximum  Value  of 
any  Service  in  exchange  will  be  struck  at  the  point  where 
the  recipient  will  prefer  to  serve  himself,  or  go  without  the 
satisfaction,  rather  than  make  the  exchange ;  and  the  mini- 
mum Value  of  any  Service  in  exchange  is  struck  at  the 
point  below  which  the  recipient  cannot  get  himself  served 
even  by  him  who  most  highly  estimates  the  return  service 
offered. 

(4)  We  come  now  to  the  last  and  most  important  Inquiry 
in  this  initial  chapter,  namely  this<,  Can  there  be,  and  is 
there,  a  strict  Science  of  Buying  and  Selling?  Is  there  a 
Science  by  itself,  clear  and  certain,  that  covers  and  controls 
Valuables  ? 

Here  we  must  go  slowly,  if  we  would  go  surely.  We 
must  first  find  out  exactly  what  a  Science  is  in  general, 
and  then  ascertain  in  particular  whether  Political  Econ- 
omy bears  all  the  marks  and  stands  all  the  tests  of  the 
other  genuine  Sciences.  What  is  a  Science  ? 

A  Science  is  the  body  of  exact  definitions  and  sound  prin- 
ciples educed  from  and  applied  to  a  single  class  of  facts  or 
phenomena. 

The  very  first  condition,  accordingly,  of  any  science  is, 


62  PRINCIPLES   OF   POLITICAL  ECONOMY. 

that  there  be  a  single  class  of  facts,  objective  or  subjective, 
that  can  be  separated  from  all  other  classes  of  facts,  in  the 
mind  by  a  generalization  and  in  words  by  a  definition,  and 
that  such  generalization  and  definition  be  clearly  made  and 
held ;  the  second  condition  is,  that  the  class  of  facts  so  cir- 
cumscribed and  defined  be  open  to  some  or  all  of  the  logi- 
cal processes  of  construction,  of  which  the  most  important 
are  Induction  and  Deduction  ;  the  third  condition  is,  that 
the  subordinate  definitions  and  working  principles  within 
the  inchoate  Science  be  all  educed  from  and  applied  to 
these  circumscribed  facts  in  strict  accordance  with  these 
well-known  logical  processes ;  and  the  last  condition  is, 
that  these  definitions  and  principles  have  gradually  be- 
come "  a  body"  in  which  there  is  an  organic  arrangement 
of  parts,  all  being  placed  in  a  just  order  and  mutual  inter- 
dependence. There  is  no  old  Science,  and  there  can  be 
no  new  Science,  in  which  these  four  conditions  do  not 
meet  and  become  blended;  and  the  beauty  of  it  is,  that 
this  Definition  applies  to  any  Science  in  all  stages  of  its 
growth.  No  one  of  all  the  Sciences  is  as  yet  completed ; 
but  just  so  soon  as  any  correct  definitions  and  principles 
are  drawn  from  and  applied  to  any  class  of  things  clearly 
circumscribed  as  such,  and  these  definitions  and  principles 
are  orderly  arranged  in  a  body,  there  is  an  incipient 
Science ;  and  its  progress  towards  perfection  will  proceed 
in  precisely  the  same  manner  in  which  its  foundations 
have  been  laid ;  new  facts  and  principles  and  definitions 
will  gradually  be  discovered,  and  these  when  reapplied  to 
the  class  of  things  out  of  which  they  have  sprung,  will 
lead  to  corrections  and  adjustments  and  enlargements  of 
the  Science  ;  and  no  matter  how  far  these  logical  processes 
may  be  carried,  the  general  Definition  with  which  we  start 
will  also  be  found  ample  at  the  end  of  the  journey. 

All  of  the  Sciences  without  exception  have  been  devel- 


VALUE.  63 

oped  into  their  present  position  in  just  this  manner ;  and 
they  fall  easily  into  three  great  classes,  namely,  the  Exact, 
the  Physical,  and  the  Moral  Sciences.  The  ground  of  this 
triple  classification  is  partly  the  distinct  subject-matter  in 
the  three  classes  of  Sciences,  and  partly  the  distinctive 
prominence  of  one  or  more  of  the  logical  processes  of  con- 
struction in  each. 

Thus,  the  class  of  the  Exact  Sciences  consists  only  of 
the  formal  Logic,  and  pure  Mathematics.  These  two  are 
distinct  from  all  other  sciences,  because  their  logical  method 
of  procedure  is  wholly  Deductive.  Deduction  is  the  pro- 
cess of  the  mind,  by  which  we  pass  from  a  general  truth 
to  a  particular  case  under  it,  that  is  to  say,  from  more  to 
less  inclusive  propositions.  Stuart  Mill  argues  at  much 
length  in  his  book  on  Logic,  that  even  the  axioms  of  pure 
Mathematics  are  originally  gained  by  Induction,  while 
others  claim  that  the  truth  of  these  axioms  is  perceived 
intuitively,  but  no  matter  how  this  point  is  decided,  the 
construction  process  of  the  Pure  Mathematics  is  from  the 
General  to  the  Particular.  So  it  is  also  with  the  Aristo- 
telian logic,  whose  Major  Premise,  whether  only  supposed 
to  be  true  or  intuitively  perceived  or  inductively  proved  is 
always  General  in  its  terms.  This  is  the  form  of  Aristotle's 
Syllogism  :  —  All  sinners  deserve  to  be  punished  ;  John  is 
a  sinner ;  and  therefore,  John  deserves  punishment. 

Physical  Sciences  are  those  concerned  with  the  classifica- 
tions and  laws  of  action  belonging  to  material  substances. 
There  are  a  great  circle  of  these,  of  which  Astronomy, 
Botany,  and  Chemistry,  may  serve  as  examples.  They 
have  been  mostly  developed  since  the  time,  and  in  accord- 
ance with  the  methods,  of  Lord  Bacon;  who,  in  strong 
reaction  against  the  Deductive  logic  of  Aristotle,  exalted 
Induction  or  the  mode  of  generalizing  from  particulars,  as 
the  true  way  of  building  up  Sciences ;  and,  as  the  subject- 


64  PRINCIPLES   OF   POLITICAL   ECONOMY. 

matter  of  each  of  the  physical  sciences  is  well  open  to 
observation  and  experiment,  to  Induction  and  Deduction, 
and  to  corrective  verifications,  both  inductive  and  deductive, 
the  new  method  proved  remarkably  pregnant  and  success- 
ful. Each  of  these  sciences  has  a  distinct  Class  of  objects 
or  phenomena  to  which  its  attention  is  directed ;  the  class 
is  circumscribed  by  the  scientific  Conception  and  Defi- 
nition ;  its  devotees  as  a  rule  are  skilled  in  using  the 
Baconian  tools ;  and  consequently,  its  conclusions  receive 
the  confidence  and  control  the  action  of  men.  All  of  the 
Physical  Sciences  are  constantly  enlarging  "  the  body  of 
exact  definitions  and  sound  principles "  connected  with 
their  several  classes  "  of  facts  or  phenomena." 

Moral  Sciences  are  those  concerned  with  the  classifi- 
cations and  laws  of  action  belonging  to  beings  having 
Thoughts  and  Desires  and  Will.  The  most  developed  of 
these  sciences  at  present  are  Metaphysics,  Ethics,  and 
Economics.  Each  of  these  is  concerned  with  a  single 
class  of  phenomena,  which  may  be  exactly  conceived  of 
and  defined,  and  is  open  to  the  logical  processes  by  which 
alone  Sciences  can  be  built  up.  But  Induction  cannot 
march  up  with  quite  so  sure  a  stride,  nor  Deduction 
descend  with  so  large  degrees  of  certainty,  in  relation  to 
persons  endowed  with  free-will,  as  in  relation  to  physical 
substances  held  firm  in  the  grip  of  unvaried  law.  Still, 
the  doubt  always  attaches  far  more  to  the  actions  of  an 
individual  than  to  the  actions  of  the  masses  of  men.  It 
is  much  easier  to  know  human  nature  in  general,  than  one 
man  in  particular,  because  many  Inductions  guided  by 
observation  and  History  make  it  almost  certain  how  masses 
of  men  will  act  under  a  given  set  of  conditions,  while  any 
one  may  act  in  a  contrary  way.  Deduction,  accordingly, 
cannot  hold  quite  the  same  place  in  the  Moral  Sciences 
so  far  as  individuals  are  concerned,  as  it  holds  in  the 


VALUE.  65 

Physical  and  Exact  Sciences ;  but  this  lack  is  perhaps 
more  than  made  up  by  other  advantages.  Experience  in 
the  moral  sciences  corresponds  to  Experiments  in  the  phys- 
ical sciences.  Then  there  is  the  great  advantage  of  Intro- 
spection ;  since  each  man  has  within  himself  the  means  of 
interpreting  and  testing  the  inductions  of  Metaphysics, 
Ethics,  and  Economics.  Then  also  there  is  the  great 
resource  of  Feigned  Cases,  which,  provided  only  they  be 
cases  possible  to  occur,  open  up  to  Reasoning  a  new  means 
of  proving  and  correcting.  Besides  these,  which  it  enjoys 
in  common  with  them,  Economics,  as  we  shall  soon  see, 
possesses  one  other  great  advantage  over  and  above  the 
rest  of  the  Moral  Sciences. 

Since,  then,  Political  Economy  deals  primarily  with 
Persons,  and  only  quite  secondarily  with  Things,  it  is, 
under  the  definition  and  on  every  ground,  a  "  moral  sci- 
ence " ;  yet  it  must  not  be  confounded  in  the  least  with 
what  is  sometimes  called  the  science  of  Morals,  or  Ethics. 
There  is  one  word  that  marks  and  circumscribes  the  field 
of  Ethics,  and  that  word  is  Ought ;  there  is  one  word  also 
that  marks  and  circumscribes  the  field  of  Economics,  and 
that  word  is  Value.  Now,  the  idea  of  obligation,  on  which 
ethical  science  is  founded,  and  the  idea  of  gainful  exchange, 
on  which  economical  science  is  founded,  are  totally  distinct 
ideas.  The  imperatives  of  ethical  obligation  rest  upon  the 
consciences  of  men,  and  Duty  is  to  be  done  at  all  hazards ; 
guilt  is  incurred  if  it  be  neglected ;  while  pecuniary  gains 
and  losses,  however  large,  do  not,  or  at  least  ought  not, 
weigh  a  feather  against  an  intuition  of  Right  and  Wrong. 
Economics,  on  the  other  hand,  does  not  aspire  to  place  its 
feet  upon  this  lofty  ethical  ground ;  no  man  is  ever  under 
any  moral  obligation  to  make  a  trade  :  he  properly  makes 
it.  or  not,  according  to  his  present  sense  of  its  gainfnlness 
to  himself ;  and  so  economic  science  finds  a  solid  and  ade- 


66  PRINCIPLES   OF   POLITICAL   ECONOMY. 

quate  footing  upon  the  expedient  and  the  useful.  Ethics 
appeals  only  to  an  enlightened  conscience,  and  certain 
conduct  is  approved  because  it  is  Right,  and  for  no  other 
reason ;  Economics  appeals  only  to  an  enlightened  self- 
interest,  and  exchanges  are  made  because  they  are  mutually 
Advantageous,  and  for  no  other  reason ;  each  of  the  two 
Sciences,  therefore,  has  a  basis  and  sphere  of  its  own,  and 
the  grounds  of  the  two  are  not  only  independent,  but  also 
incommensurable. 

We  will  now  apply  seriatim  to  Political  Economy  the 
four  fundamental  conditions  belonging  to  all  recognized 
Sciences,  and  so  determine  for  ourselves  whether  it  be 
not  a  strict  science,  and  thus  worthy  in  its  leading  propo- 
sitions of  all  acceptation. 

(a)  Every  science  must  have  to  begin  with  a  definite 
Class  of  facts,  which  lie  in  an  easily  circumscribable  field, 
and  which  are  not  likely  to  be  confounded  with  other  facts 
of  a  differing  nature.  Economy  has  such  a  class  of  facts, 
that  lie  in  such  a  field,  and  that  cut  themselves  off  by 
sharp  lines  from  all  other  things.  Valuables  is  its  class 
of  things.  It  has  nothing  to  do  with  any  other  class  of 
things.  Its  field  is  Value,  or  Sales,  or  Exchanges.  This 
field  is  perfectly  definite.  Sales  are  never  confounded 
with  gifts,  and  are  never  confounded  with  thefts.  They 
have  a  distinctive  character  of  their  own.  They  have 
always  been  in  the  world,  will  always  be  in  the  world  in 
ever-multiplying  volume,  and  no  one  ever  mistakes  their 
main  features  for  anything  else.  Anything  whatsoever 
that  is  salable,  or  is  about  to  be  made  so,  conies  within 
the  view  of  Economics,  and  scientifically  it  cares  for  noth- 
ing else.  While  it  finds  its  field  definite,  it  also  finds  it 
broad.  It  has  no  wish  to  encroach  on  other  sciences,  nor 
will  it  tolerate  any  encroachments  on  its  own.  Before 
anything  is  sold,  or  is  being  made  ready  to  sell,  it  cares 


VALUE.  67 

nothing  what  other  science  employs  itself  upon  that  thing ; 
after  the  thing  is  sold,  Economy  loses  its  interest  in  it, 
and  other  sciences  may  take  it  up  if  they  choose.  Valua- 
bleness  is  the  one  quality  that  constitutes  the  Class  of 
things  with  which  the  Science  is  conversant,  and  it  claims 
complete  jurisdiction  over  all  things  just  so  far  forth  as 
they  have  this  one  quality,  and  no  farther.  Now  there  is 
in  the  actual  world  such  a  Class  of  things ;  its  exterior 
boundaries  have  been  exactly  ascertained  by  a  long  series 
of  Inductions  and  Deductions,  tentative,  corrective,  and 
confirmatory;  and  accordingly,  Political  Economy  has  now 
in  full  possession  the  first  grand  condition  of  a  Science. 

(b)  This  great  class  of  facts,  thus  reached  by  logical 
Generalization  and  grasped  and  held  by  a  mental  Con- 
ception and  fixed  by  an  adequate  verbal  Definition,  is 
remarkably  open  to  all  the  logical  processes  of  reasoning, 
by  which  alone  sciences  are  constructed,  and  thus  possesses 
in  full  measure  the  second  grand  condition  of  the  Sciences. 
Not  one  logical  resource  is  denied  to  the  economists :  all 
the  tools  of  the  scientific  workshop  are  at  their  hands. 
Let  us  now  catalogue  these  in  their  order. 

(1)  Induction.  This  is  the  logical  and  universal  process, 
by  which  the  mind  naturally  passes  up  from  a  certain  num- 
ber of  observed  cases,  in  which  a  certain  quality  appears, 
to  a  Generalization,  which  is  a  conception  of  the  mind  fol- 
lowed by  a  statement  in  words  to  the  effect,  that  all  possi- 
ble cases  of  that  kind  will  exhibit  the  quality  already 
observed  in  the  few  cases.  It  has  as  its  basis  a  confidence 
in  the  resemblances  and  uniformities  of  Nature ;  it  pro- 
ceeds upon  the  axiom  that  Nature  throughout  is  consistent 
with  herself;  and  this  confidence  has  been  ten  thousand 
times  justified  in  the  issue,  when  it  is  found  that  Nature 
preordained  the  Sciences  by  causing  grand  analogies  to 
run  through  each  department  of  her  works,  including  man 


68  PRINCIPLES    OF   POLITICAL    ECONOMY. 

and  his  works.  The  structure  of  the  human  mind  corre- 
sponds with  these  objective  resemblances ;  it  seizes  upon 
them,  and  delights  in  them,  and  naturally  and  joyfully 
infers  and  concludes  that  what  has  been  observed  of  a  part 
may  be  safely  affirmed  of  the  whole  of  that  kind ;  accord- 
ingly, the  world  over,  when  certain  things  are  found  to 
be  true  in  a  considerable  number  of  cases,  the  mind  leaps 
over  space  and  time  to  a  whole  class,  and  frames  for  itself 
a  general  rule  or  principle,  which  binds  all  the  cases  into 
one  bundle,  and  thereafter  confidently  affirms  what  is 
known  to  be  true  of  some  to  be  probably  true  of  all.  This 
is  inductive  Generalization ;  and  the  strength  and  the  joy 
of  it  is  well  expressed  by  Descartes:  " I have  thought  that 
I  could  take  as  a  just  generalization  that  which  I  very  clearly 
and  vividly  conceived  to  be  true." 

Experience  in  Economics  corresponds  to  Experiment  in 
the  Physical  Sciences,  and  furnishes  to  Induction  all  the 
fuel  it  can  ask  for  to  feed  its  logical  furnace  and  to  forge 
the  chains  that  bind  the  Cases  to  the  Classes.  Personal 
experience  in  buying  and  selling,  local  experience  in  buy- 
ing and  selling,  and  national  experience  in  buying  and  sell- 
ing, with  all  that  belongs  to  these,  the  records  of  which 
are  full  to  overflowing,  afford  to  the  inductive  inquirer  in 
Economics  an  inexhaustible  supply  of  material.  Instances 
abound.  Particulars  may  be  gathered  up  one  by  one  on 
every  hand  and  linked  into  the  inductive  chain.  If  any 
doubt  be  felt  about  the  strength  of  any  one  of  these  chains, 
another  one  rnay  at  once  be  linked  in  terms  drawn  from 
another  field  of  Experience  with  a  view  to  test  the  strength 
of  the  first.  Most  fortunate  from  this  point  of  view  is  the 
United  States,  because  here  there  are  States  with  substan- 
tive powers  of  control  over  most  matters  of  trade  within 
their  borders,  as  well  as  a  Nation  with  sovereign  powers 
of  control  over  some  points  of  trade  within  the  country 


VALUE.  69 

as  a  whole.  This  feature  has  given  birth  to  commercial 
experiments  as  well  as  commercial  experience  of  all  kinds ; 
and  Induction  rejoices  in  all  these  abundant  materials  for 
generalization  thus  furnished  free  of  cost  to  Science, 
though  unfortunately  not  free  of  cost  to  the  People. 

(2)  Deduction.  This  is  a  logical  process  exactly  the 
reverse  of  the  first,  in  that  it  descends  from  a  generalized 
statement  reached  by  the  inductive  process  to  some  partic- 
ular, or  subordinate  class  of  particulars,  ostensibly  covered 
by  the  general  maxim.  Induction  examines  a  number  of 
particulars,  and  then  makes  a  leap,  it  may  be  a  long 
leap,  over  all  intervening  particulars,  to  its  Generalization 
clamping  them.  The  main  use  of  Deduction  is  to  make 
sure  of  any  one  of  these  overleaped  particulars,  which  may 
come  into  importance,  and  thus  confirm  the  generalization, 
or  correct  it.  It  is  not  strictly  true,  what  is  often  alleged 
against  deductive  reasoning,  that  there  is  nothing  new  in 
its  result,  that  the  Induction  had  already  passed  through 
that  particular  in  rising  to  its  Generalization,  and  therefore 
to  descend  to  any  particular  link  to  examine  that,  is  some- 
thing useless.  The  exact  truth  is,  that  it  is  useless  to 
examine  again  deductively  the  very  particulars  that  were 
carefully  studied  inductively,  but  on  the  other  hand  there 
is  always  much  actually  untraversed  territory  between 
these  already  examined  particulars  and  the  inductive  gen- 
eralization, and  Deduction  is  often  very  useful  in  carrying 
us  down  to  questionable  points  in  this  territory.  Even 
Lord  Bacon,  who  scorned  the  syllogism,  admits  this : 
44  Axioms  duly  and  orderly  formed  from  particulars  easily 
discover  the  way  to  new  particulars,  and  thus  render  sciences 
active" 

We  will  illustrate  this  by  a  reference  to  Franklin's 
famous  induction  to  prove  the  identity  of  lightning  witli 
electricity.  Only  one  experiment,  and  that  a  very  rude 


70  PRINCIPLES   OF   POLITICAL   ECONOMY. 

one,  was  needful  in  this  case;  although  usually  many 
experiments,  or  the  careful  observation  of  many  particu- 
lars, are  necessary  in  inductions;  but  the  generalization 
having  been  gained,  Deduction  had  a  chance  to  try  its 
hand ;  it  had  long  been  observed  that  electricity  could  be 
conducted  from  point  to  point,  and  if  electricity  and  light- 
ning be  identical,  then  lightning  can  be  so  conducted; 
therefore,  deduced  Franklin,  a  pointed  iron  rod  elevated 
above  buildings  will  harmlessly  conduct  lightning  from 
the  clouds  into  the  ground.  Deduction  gave  mankind  the 
lightning-rod,  and  so  made  one  point  of  science  " active" 
as  Bacon  phrased  it;  and  it  is  noticeable,  that  Turgot's 
felicitous  epigram  turns  on  the  deductive  rather  than  the 
inductive  side  of  Franklin's  experiment :  Eripuit  ccelo  ful- 
men  sceptrumque  tyrannis. 

Let  us  catch  up  another  illustration  from  the  science 
of  Botany,  to  show  how  Deduction  may  strengthen  and 
sharpen  an  inductive  result.  The  botanists  say,  that 
apple-tree  blossoms  are  always  five-petaled,  because  blos- 
soms from  a  large  number  of  apple-trees  in  various  locali- 
ties have  been  observed  to  have  just  five  petals  to  the 
blossom;  so  far,  they  affirm  inductively,  and  indeed  se- 
curely ;  but  they  have  also  reached  by  means  of  another 
induction  a  much  broader  law  of  plant-life,  namely,  that 
outside-growers,  when  they  have  petaled  flowers  at  all, 
always  have  them  five-fold;  now  apple-trees  are  outside- 
growers  ;  and  therefore,  deductively  also,  and  conclusively 
beyond  shadow  of  question,  apple-tree  blossoms  are  five- 
petaled. 

Political  Economy  is  just  as  open  to  Deduction  as  it  is 
to  Induction,  and  the  two  continually  are  reaching  each 
other  the  hands  of  economical  reasoning,  not  always 
indeed  pursuing  each  a  separate  and  distinct  path  to  the 
end,  as  in  the  botanical  instance  just  adduced ;  because  in 


VALUE.  71 

practice  the  two  processes  mingle  constantly,  and  neither 
is  carried  out  in  full  and  due  form,  since  premises  used  by 
the  mind  are  often  dropped  in  the  statement,  and  shortened 
forms  of  expression  take  the  place  of  long-drawn-out  for- 
mulas. But  all  good  reasoning  in  Economics,  as  in  all 
other  sciences,  is  analyzable  into  one  or  other  of  these  two 
processes,  both  based  alike  on  the  uniformities  of  Nature 
and  the  structure  of  the  human  mind. 

Deduction  has  not  quite  the  same  scope  and  certainty 
in  Economics  as  in  the  Physical  Sciences,  because  any  one 
may  act  contrary  to  the  vastly  probable  action  of  many 
individuals ;  still,  it  is  a  safe  and  potent  process  in  econom- 
ics, since  it  may  descend  securely  from  the  larger  masses 
to  the  smaller,  even  though  perchance  the  individual 
escape,  because  of  the  simplicity  and  universality  and  cer- 
tainty of  the  impulses  that  lead  men  to  exchange.  John 
Bascom  gives  the  reason  well,  why  both  Induction  and 
Deduction  have  so  firm  a  grasp  upon  this  science:  "Be- 
tween one  dollar  and  two  dollars  a  man  has  no  choice,  he 
must  take  the  greater ;  between  one  day  and  two  days  of 
labor  he  must  take  the  less;  between  the  present  and  the 
future  he  must  take  the  present.  This  is  not  a  sphere  of 
caprice,  nor  scarcely  even  of  liberty  ;  the  actions  themselves 
present  no  alternative,  and,  if  an  alternative  giving  an  oppor- 
tunity for  choice  does  arise,  it  arises  from  some  partial  or 
individual  impulse,  from  some  one  of  those  transitory  and 
foreign  influences,  which,  while  rippling  the  surface,  neither 
belong  to  nor  affect  the  current  of  the  stream" 

(3)  Introspection.  Everybody  buys  and  sells,  and  al- 
most everybody  watches  the  action  of  his  own  mind  enough 
to  see  what  are  his  motives  in  buying  and  selling,  and  soon 
comes  to  know  also  that  the  other  party  has  corresponding 
motives.  Even  the  child  knows  perfectly,  that  it  takes 
two  to  make  a  bargain,  that  each  party  renders  something 


72  PRINCIPLES   OF  POLITICAL   ECONOMY. 

to  the  other,  that  each  is  glad  to  part  with  something  for 
the  sake  of  receiving  something  from  the  other,  and  that 
this  higher  esteem  put  by  each  on  what  is  taken  from  the 
other  makes  for  each  the  gain  of  the  trade.  A  very  little 
introspection  tells  anybody,  that  were  this  higher  esteem 
wanting  in  the  minds  of  either  of  the  two,  the  trade  would 
not  take  place  at  all.  Everybody  within  the  pale  of  com- 
pos mentis  knows,  that,  were  his  own  desire  for  the  render- 
ing of  another  to  increase,  he  himself  would  offer  more  of 
his  own  rendering  rather  than  forego  the  trade ;  and  he 
rightly  infers,  that  what  is  true  of  himself  is  true  of  all 
other  men  ;  and  so,  every  seller  rightly  tries  to  display  his 
wares  in  such  a  way  as  to  increase  the  desire  of  buyers  for 
them ;  knowing  full  well  from  his  own  experience  in  buy- 
ing that,  other  things  being  equal,  they  will  be  willing  to 
render  him  more  for  them  in  consequence. 

The  phrase  above,  "rightly  infers,"  is  based  upon  the 
truth,  that  all  men  are  remarkably  alike  in  certain  great 
departments  of  action;  and  that,  in  no  department  are 
they  so  nearly  alike  as  in  this  of  buying  and  selling. 
Introspection,  therefore,  an  easy  self-knowledge  open  to 
all  persons  alike,  and  a  personal  experience  in  these  mat- 
ters that  everybody  gains,  give  most  trustworthy  answers 
to  Inductive  inquiry  along  these  lines.  Trade  is  natural 
and  gainful,  as  any  person  can  see,  who  stops  to  ask  him- 
self why  he  has  made,  or  is  about  to  make,  a  given  trade ; 
and  if  natural  and  gainful  to  him,  equally  so  for  precisely 
the  same  reasons  to  the  party  of  the  other  part ;  hence  no 
law  or  encouragement  is  needed  to  induce  any  persons  to 
enter  upon  traffic ;  and  any  law,  or  artificial  obstacle,  that 
hinders  any  two  persons  from  trading,  who  would  other- 
wise trade,  not  only  interferes  with  an  inalienable  right 
that  belongs  to  both,  but  also  destroys  an  inevitable  gain 
that  would  otherwise  accrue  to  both.  Political  economy 


VALUE.  73 

is  very  fortunate,  accordingly,  in  being  able  to  make  its 
appeal  to  the  common  sense  of  all  men,  giving  sound 
starting-points  through  self-knowledge  possessed  by  all 
men,  guiding  to  safe  steps  by  means  of  Induction  all  who 
like  to  generalize  and  prove,  and  especially  breaking  up 
current  fallacies  by  asking  the  potent  question,  "How 
would  you  like  it  yourself  ?  " 

(4)  Feigned  Cases.  There  are  two  kinds  of  these,  namely, 
those  which  might  be  realized  in  actual  fact,  and  those 
which  never  can  be  so  realized.  The  acute  mind  of  the 
Greeks  marked  in  their  flexible  language  a  decided  differ- 
ence between  the  class  of  suppositions  that  might  possibly 
become  facts,  and  another  class  of  suppositions  impossible 
to  become  facts,  by  developing  a  distinct  form  of  expression 
for  each.  This  distinction  must  always  be  borne  in  mind 
by  those  who  use  or  note  in  economical  discussions  the 
expedient  of  Feigned  Cases.  Reasoning  is  always  legiti- 
mate and  often  pregnant  from  suppositions,  whenever 
these  are  such  as  might  readily  become  facts  of  experi- 
ence, because  in  that  case  the  argument  proceeds  upon 
recognized  and  inductive  resemblances ;  but  otherwise,  no 
inference  at  all  can  be  drawn  from  them,  because  it  is  an 
universal  truth  in  Nature  and  in  Logic,  ex  nihilo  nihil  fit, 
out  of  nothing  nothing  can  come.  In  plausible  supposi- 
tions impossible  to  become  facts  is  a  nest  of  logical  falla- 
cies, that  need  to  be  watched.  A  good  illustration  may  be 
found  in  the  Monetary  Conference  at  Paris  in  1881.  Del- 
egates were  there  from  all  the  nations  of  Europe,  from  the 
United  States,  and  even  the  distant  India.  Some  of  these 
in  their  eagerness  for  a  factitious  ratio  of  value  between 
gold  and  silver  forgot  the  important  distinction  now  in 
hand,  and  argued  of  the  good  results  to  flow  from  the 
realization  of  a  supposition,  which  in  fact  never  could  be 
realized.  Mr.  Evarts  voiced  the  French  and  American 


74  PKINCIPLES   OF   POLITICAL   ECONOMY. 

delegates  in  this  declaration :  "  Any  ratio  now  or  of  late  in 
use  by  any  commercial  nation,  if  adopted  by  an  important 
group  of  states,  could  be  maintained  ;  but  the  adoption  of  a 
ratio  of  15£  of  silver  to  1  of  gold  would  accomplish  the  prin- 
cipal object  with  less  disturbance  in  the  monetary  systems  to 
be  affected  by  it  than  any  other  ratio."  The  fallacy  in  this 
passage  is  in  the  words,  "  could  be  maintained,"  which  are 
a  supposition,  and  what  is  much  worse,  a  supposition  con- 
trary to  fact,  from  which  all  arguing  is  nugatory.  Why 
it  is  contrary  to  fact  will  be  seen  at  length  in  the  following 
chapter  on  Money. 

On  the  other  hand,  a  supposition  that  may  clearly  become 
a  fact  is  a  substantive  thing,  and  logical  inferences  may  be 
drawn  from  it,  just  as  geometrical  inferences  may  be  drawn 
from  a  supposed  circle  :  the  circle  on  the  page  is  not  a  per- 
fect circle  —  no  such  circle  was  ever  drawn — but  suppose 
it  perfect,  as  it  might  possibly  be,  and  argument  becomes 
at  once  valid.  Let  us  take  another  Monetary  Conference 
at  Paris  in  1867  as  an  illustration :  its  judgment  as  voiced 
by  Mr.  Ruggles  of  New  York  was  taken  with  logical  pro- 
priety, when  the  great  benefits  of  an  international  coinage 
of  gold  alone  were  argued  and  announced,  because,  while 
that  was  then  a  mere  conjectural  project,  it  was  possible 
any  day  by  mutual  agreement  among  the  nations  to  become 
a  reality.  An  international  coinage  of  gold  is  a  simple 
question  of  equivalence  of  weights  in  the  coins  of  different 
countries :  an  equivalence  of  values  as  between  gold  and 
silver  coins  for  any  great  length  of  time  is  neither  simple 
nor  possible. 

(5)  Results  measurable  in  numbers.  The  four  preceding 
logical  processes  of  proof  and  construction  Political  Econ- 
omy is  glad  to  share  with  the  other  Moral  Sciences,  but  this 
fifth  and  last  one  it  has  to  itself  alone,  and  this  is  its  chief 
scientific  advantage  over  them,  and  is  consequently  the  main 


VALUE.  75 

reason  why  it  is  already  more  advanced  and  more  symmet- 
rically developed  than  any  of  them.  In  common  with  them 
it  has  important  subjective  elements,  such  as  Desires,  Esti- 
mates, and  Satisfactions ;  in  marked  advantage  over  them 
it  has  also  objective  elements,  that  can  be  weighed  and 
measured  and  even  hardened  into  statistics.  Economics 
has  an  ever  ready  objective  test,  which  mere  mental  and 
ethical  and  other  moral  processes  never  can  have  from  their 
very  nature.  The  result  of  each  and  of  all  economic  trans- 
actions may  be  measured  by  money,  and  put  down  in  a 
ledger,  and  published  to  the  world  in  the  form  of  statistics. 
An  economic  blunder,  whether  in  legislation  or  in  private 
action,  pretty  soon  proves  itself  to  be  such  by  the  lessened 
gains  of  somebody,  and  these  losses  can  be  stated  arithmet- 
ically; and  similarly,  an  economic  improvement  evidences 
itself  at  once  by  increased  gains  coming  to  somebody ;  while 
it  may  take  years  and  years  to  work  out  the  results  of  an 
ethical  mistake,  and  even  then  their  amount  can  only  be 
guessed  at. 

Theories  in  metaphysics  can  only  be  tested  by  the  Reason 
of  men,  and  reasonable  men  without  apparent  bias  of  motive 
take  opposite  views  of  Sensations  and  Intuitions  and  Voli- 
tions ;  while  theories  in  economics,  which  can  be  even  better 
tested  by  the  Reason,  have  an  additional  and  almost  imme- 
diate and  constantly  recurring  test  through  men's  pockets 
and  the  tables  of  the  Census.  The  people  indeed  some- 
times deceive  themselves,  and  are  also  too  often  deceived 
by  others,  in  these  matters  of  buying  and  selling ;  but  it  is 
none  the  less  of  the  utmost  consequence  to  this  Science, 
that  all  the  results  of  good  and  bad  practice  in  Economics 
work  themselves  at  last  into  a  definite  shape,  into  facts  and 
figures  that  cannot  lie.  It  is  not,  as  in  Ethics  and  Meta- 
physics, that  tendencies  and  potencies  only  are  ascertained, 
but  everything  speedily  drifts  into  results  measurable  in 


PRINCIPLES    OF    POLITICAL   ECONOMY. 

numbers,  which  stand  out  like  landmarks  against  the  sky. 
It  is  just  for  this  reason,  as  both  the  schools  of  the  Roman 
lawyers  admitted,  namely,  that  we  have  in  all  cases  the 
Return-Service  as  the  outward  expression  and  measure  of 
the  Desire  and  Effort  of  him  who  renders  the  service,  and 
because  it  makes  no  difference  which  of  two  services  ex- 
changed be  regarded  as  the  return-service,  that  our  Science 
is  reared  on  the  firm  ground  of  objective  realities,  notwith- 
standing the  strong  subjective  elements  that  have  a  constant 
part  in  it. 

(c)  The  third  condition  of  a  recognized  Science  is,  that 
the  logical  processes  appropriate  to  its  class  of  facts  have 
been  already  carefully  applied  to  them  and  a  certain  num- 
ber of  "  exact  definitions  and  sound  principles  "  have  been 
already  "educed  from  and  applied  to  "  them.  We  do  not 
hesitate  a  moment  to  claim,  that  this  condition  also  is  fairly 
and  fully  met  by  Political  Economy,  and  that  this  is  a  "  Sci- 
ence" under  the  definition  from  every  point  of  view,  and 
particularly  from  this  third  point  of  view ;  and  a  few  exam- 
ples will  now  be  given  as  a  specimen  merely  of  the  logical 
work  already  achieved  in  Economics.  First,  Induction 
more  or  less  busy  for  two  thousand  years  has  given  at  last 
an  exact  and  acceptable  definition  of  the  Science,  and 
impliedly  an  exact  description  of  the  class  of  facts  with 
which  it  is  conversant,  namely,  the  Science  of  Sales,  or  what 
is  exactly  equivalent,  the  Science  of  Value  ;  and  Deduction 
at  all  points  along  this  slow  road  has  helped  to  correct  and  to 
broaden  successive  imperfect  inductions,  which  an  inquisi- 
tive and  tentative  and  cautious  spirit — the  mainspring  of 
Constructive  Science — has  instituted  from  time  to  time. 

Second,  precisely  the  same  processes  often  repeated  have 
ascertained  beyond  question,  that  there  are  only  three 
classes  of  Valuables  and  the  exact  differences  between  them, 
and  that,  consequently,  only  six  cases  of  Value  are  possible 
to  happen. 


VALUti.  77 

Third,  so  many  nations  at  different  times  in  all  ages  have 
lowered  the  standard  of  their  Money  under  a  misapprehen- 
sion of  its  nature  and  in  a  vain  hope  of  profit,  and  a  gen- 
eral scale  of  rising  prices  following  each  attempt  of  this 
kind  having* been  several  times  observed  and  no  instance  to 
the  contrary,  Economists  came  by  Induction  to  assert  the 
proposition,  that  falling  Moneys  cause  rising  Prices;  the 
proposition  stood  secure  on  inductive  grounds  alone ;  but 
so  soon  as  a  perfect  definition  of  Money,  namely,  a  Meas- 
ure of  Services,  had  at  last  been  reached  both  inductively 
and  deductively,  it  became  at  once  a  safe  Deduction  from 
the  definition,  that  rising  Prices  must  succeed  a  falling 
Measure.  Thus  assurance  became  doubly  sure. 

Fourth,  Introspection  gives  each  buyer  and  seller  such 
firm  possession  of  his  own  motive  in  buying  and  selling, 
that  he  naturally  and  inductively  concludes  on  the  ground 
that  men  are  substantially  alike,  that  the  motive  is  similar 
in  the  party  of  the  other  part ;  each  further  step  of  expe- 
rience in  traffic  assures  him  of  this  beyond  a  doubt,  —  each 
wants  to  get  and  does  get  something  from  the  other  of 
more  consequence  to  him  than  what  he  gives;  every 
attempted  deviation  from  rectitude  in  trade  so  far  forth 
throws  the  trader  out  from  opportunity  to  trade ;  oppor- 
tunity to  trade  is  nothing  in  the  world  but  a  market;  a 
market  is  nothing  in  the  world  but  men  with  products  in 
their  hands,  desiring  to  buy  other  products  with  these ; 
the  more  men  anywhere  with  the  more  products  in  their 
hands  of  all  sorts  to  buy  with,  the  better  market  every- 
where for  other  men  (the  more  the  better)  with  other 
products  of  all  kinds  to  buy  with;  all  the  appropriate 
logical  processes  in  action  and  reaction,  all  the  commer- 
cial experience  of  all  men  everywhere,  and  all  the  true 
statistics  of  traffic  ever  gathered,  do  but  assure  the  induc- 
tive assent  to  one  of  the  best  and  broadest  of  all  the 


78  PRINCIPLES   OF   POLITICAL  ECONOMY. 

Generalizations  in  Economics,  namely  this  :  A  market  for 
products  is  products  in  market. 

(d)  Are  the  definitions  and  principles  already  logically 
educed  from  and  applied  to  the  great  class  of  Valuables 
orderly  arranged  in  "  a  body  "  ?  This  is  the  only  inquiry  that 
remains,  in  order  to  determine  whether  Political  Economy 
is  already  a  "Science  "  in  the  strictest  sense  of  that  term. 
It  is  admitted,  that  a  jumble  of  even  just  definitions  and 
principles  do  not  constitute  a  science,  but  only  these  when 
placed  in  a  just  order  and  interdependence.  A  "  body  " 
implies  an  organic  arrangement  of  parts.  It  has  been  well 
said  of  the  human  body,  that  all  its  parts  are  reciprocally 
means  and  ends;  the  same  may  be  said  of  every  living 
organic  body,  whether  vegetable  or  animal ;  and  the  same 
may  be  said  in  the  way  of  analogy  of  every  developed  and 
recognized  Science.  All  the  definitions  and  propositions 
and  illustrations  in  any  science  should  be  so  arranged,  as 
to  show  the  mutual  relations  and  reciprocal  dependence  of 
all  the  parts,  and  as  to  display  the  whole  in  harmony  and 
symmetry. 

It  is  as  certain  as  anything  in  the  future  can  be  in  science, 
that  new  principles  will  be  discovered  in  Economics  as  Time 
and  Inquiry  go  on,  and  that  these  will  find  their  place 
little  by  little  in  a  fuller  and  more  rounded  "  body  "  than 
is  at  present  possible ;  while  it  is  also  as  certain  as  any- 
thing in  the  future  of  science  can  be,  that  the  Outline 
of  economics  is  already  perfectly  drawn,  that  the  great 
class  of  Valuables  will  never  be  enlarged  nor  be  better 
described,  that  the  category  of  Commodities,  Services, 
Credits,  is  completed  for  all  time,  and  that  the  analysis 
of  each  act  of  trade  into  two  Desires  and  two  Efforts  and 
two  Estimates  and  two  Renderings  and  two  Satisfactions 
will  never  yield  additional  elements.  Political  Economy 
is  already  a  body  of  exact  definitions  and  sound  principles 


VALUE.  79 

educed  from  and  applied  to  a  single  class  of  facts.  This 
body  will  indeed  be  enlarged  by  a  future  and  finer  scienti- 
fic construction,  the  arrangement  and  interdependence  of 
its  parts  will  be  better  exhibited,  the  form  and  filling  up 
of  the  Science  within  the  outline  already  determined  is 
sure  to  become  more  compact,  more  robust,  and  more 
beautiful,  as  the  decades  and  centuries  go  by;  while,  as 
in  the  human  body  throughout  all  the  changes  of  its 
growth  and  mature  life,  that  future  body  of  economic 
science  in  all  its  stages  towards  perfection  will  be  but 
the  continuation  and  fuller  development  of  the  present 
"  body  "  of  Political  Economy. 


80  PRINCIPLES   OF   POLITICAL  ECONOMY. 


CHAPTER  II. 

MATERIAL   COMMODITIES. 

VALUABLES  fall  naturally  and  exactly  into  three  classes, 
Commodities,  Services,  and  Credits.  The  reasons  are  ob- 
vious at  first  glance,  why  articles  falling  in  the  first  class 
occupied  the  thoughts  and  the  efforts  of  men  almost  ex- 
clusively for  the  first  thousand  years  of  recorded  history. 
Commodities  appealed  to  the  senses  of  men :  they  are 
visible,  tangible,  weighable.  Some  form  of  personal  sla- 
very existed  everywhere,  and  largely  withdrew  attention 
from  personal  services  bought  and  sold ;  and  there  was 
not  apparently  sufficient  personal  confidence  between  man 
and  man  in  the  earlier  ages  to  allow  much  development  of 
credits,  whose  ground  is  personal  trust  and  whose  sphere  is 
future  time.  Commodities,  on  the  other  hand,  fitted  by 
the  efforts  of  some  men  to  satisfy  the  immediate  wants  of 
other  men,  all  ready  for  delivery,  to  be  exchanged  against 
other  commodities  similarly  fitted  and  at  hand,  took  the 
field  apparently  in  the  earliest  ages  of  recorded  Time, 
gradually  became  very  large  in  volume,  opened  new 
routes  of  travel  and  transportation,  and  served  to  connect 
in  a  rough  and  ready  way  neighboring  tribes  and  even 
neighboring  nations. 

Commodities  are  the  class  of  Valuables  comprising  mate- 
rial things,  organic  and  inorganic,  fitted  by  human  efforts  to 
satisfy  human  desires.  Cattle  were  probably  among  the 
first  things  to  become  valuable,  that  is,  salable  ;  and  it  is 


MATERIAL   COMMODITIES.  81 

certain,  that  they  became  very  early  in  many  quarters  of 
the  world  a  sort  of  Money  or  standard  of  comparison 
among  other  things  exchangeable,  and  indeed  they  con- 
tinue to  be  such  in  some  quarters  to  this  day.  Near  the 
middle  of  the  sixth  book  of  the  Iliad  occur  these  lines :  — 

"  Then  did  the  son  of  Saturn  take  away 
The  judging  mind  of  Glaucus,  when  he  gave 
His  arms  of  gold  away  for  arms  of  brass 
Worn  by  Tydides  Diomed,  —  the  worth 
Of  fivescore  oxen  for  the  worth  of  nine  " 

Gold  and  silver  also  became  valuable  in  the  ordinary 
way  in  very  early  times,  and  later  became  Money  or  a 
medium  in  exchanging  other  things ;  and  much  later  other 
metals  came  into  use  as  commodities  and  then  too  as 
money ;  for  the  Latin  word  for  money,  pecunia,  derived 
from  pecus,  cattle,  seems  to  imply  some  original  equiva- 
lence in  value  between  the  bronze  stamped  with  the  image 
of  cattle  and  the  cattle  themselves.  Parcels  of  land  sub- 
dued and  improved  by  human  hands  were  probably  bought 
and  sold  in  some  portions  of  the  world  as  early  as  anything 
was,  —  at  any  rate  very  early.  Land-parcels  are  a  com- 
modity under  the  definition.  Another  passage  from 
Homer,  towards  the  end  of  the  seventh  book  of  the  Iliad, 
displays  some  of  the  commodities  in  common  use  during 
the  heroic  age  in  Greece :  — 

"  But  the  long-haired  Greeks 

Bought  for  themselves  their  wines ;  some  gave  their  brass, 
And  others  shining  steel ;  some  bought  with  hides, 
And  some  with  steers,  and  some  with  slaves,  and  thus 
Prepared  an  ample  banquet." 

The  earliest  detailed  record  of  a  commercial  transaction 
in  commodities,  is  the  purchase  by  Abraham  of  the  field 
and  cave  in  Hebron,  more  than  2000  years  before  Christ. 
It  is  narrated  at  length  in  Genesis  xxiii.  Long  before 


82  PRINCIPLES   OF   POLITICAL  ECONOMY. 

this  purchase,  however,  it  is  said  of  Abraham  that  he 
"  went  up  out  of  Egypt  very  rich  in  cattle,  in  silver,  and  in 
gold."  This  formal  sale  to  him  in  Hebron  of  the  field  and 
cave  of  Machpelah  is  in  all  its  parts  instructive  to  us,  and 
full  of  signs  of  the  drift  of  those  times.  It  was  "  in  the 
audience  of  the  sons  of  Heth,  before  all  that  went  in  at  the 
gate  of  his  city,  that  the  field  and  the  cave  were  made  sure 
unto  him  for  a  possession.  And  Abraham  weighed  unto 
Ephron  the  silver  which  he  had  named  in  the  audience  of 
the  sons  of  Heth,  four  hundred  shekels  of  silver,  current 
money  with  the  merchant"  In  the  lack  of  written  and 
recorded  deeds  to  land-parcels,  as  we  have  them  now, 
the  sale  of  them  was  "  made  sure  "  before  the  faces  of  liv- 
ing men,  who  would  tell  the  truth  and  pass  on  the  word. 
The  market-place  in  those  days  was  "at  the  gate  of  the  city" 
where  the  judges  also  used  to  hold  their  courts,  the  place 
most  frequented  of  all,  and  sales  were  made  "'before  all 
that  went  in"  thither;  "  in  the  audience  of  the  sons  of  Heth" 
was  the  silver  weighed  out,  and  the  field  made  sure  in 
exchange.  Then  there  were  "merchants"  as  a  class; 
silver  passed  by  weight  rather  than  by  tale,  although  it 
had  already  passed  beyond  a  mere  commodity  and  had 
become  money,  "  current  money  with  the  merchant "/  and 
even  at  this  day  the  Bank  of  England  takes  in  and  pays  out 
gold  and  silver  by  balance  rather  than  by  count,  though 
they  be  in  coined  money :  it  is  the  more  accurate  method. 
The  author  of  the  book  of  Job,  believed  to  be  of  great 
antiquity,  and  certainly  true  to  nature  and  to  fact  in 
its  essential  parts,  knew  very  well  the  modes  in  which 
the  ancient  mines  were  wrought,  and  the  worth  of  the 
commodities  extracted :  — 

"  Truly  there  is  a  vein  for  silver, 
And  a  place  for  gold,  which  men  refine. 
Iron  is  obtained  from  earth, 


MATERIAL  COMMODITIES.  83 

And  stone  is  melted  into  copper. 

Man  putteth  an  end  to  darkness ; 

He  searcheth  to  the  lowest  depths 

For  the  stone. of  darkness  and  the  shadow  of  death. 

From  the  place  where  they  dwell  they  open  a  shaft ; 

Forgotten  by  the  feet, 

They  hang  down,  they  swing  away  from  men. 

The  earth,  out  of  which  cometh  bread, 

Is  torn  up  underneath,  as  it  were  by  fire. 

Her  stones  are  the  place  of  sapphires, 

And  she  hath  clods  of  gold  for  man. 

The  path  thereto  no  bird  knoweth, 

And  the  vulture's  eye  hath  not  seen  it ; 

The  fierce  wild  beast  hath  not  trodden  it ; 

The  lion  hath  not  passed  over  it. 

Man  layeth  his  hand  upon  the  rock; 

He  upturn eth  mountains  from  their  roots ; 

He  cleaveth  out  streams  in  the  rocks, 

And  his  eye  seeth  every  precious  thing ; 

He  bindeth  up  the  streams,  that  they  trickle  not, 

And  bringeth  hidden  things  to  light." 

The  prophet  Ezekiel,  who  wrote  in  the  sixth  century 
before  Christ,  incidentally  described  in  his  chapter  xxvii 
the  commerce  in  commodities,  that  then  centered  in  the 
city  of  Tyre  on  the  eastern  Mediterranean.  "  All  the  ships 
of  the  sea  with  their  mariners  were  in  thee  to  traffic  in  thy 
merchandise :  many  islands  were  at  hand  to  thee  for  trade  : 
with  silver,  iron,  tin,  and  lead,  they  traded  in  thy  fairs : 
they  brought  thee  for  payment  horns  of  ivory  and  ebony- 
wood"  Among  the  commodities  besides  these  exchanged 
in  that  market,  are  mentioned  by  the  prophet  horses 
and  mules  and  lambs  and  rams  and  goats,  wine  of  Helbon 
and  white  wool,  fine  linen  and  embroidered  work,  and 
riding  cloths  and  mantles  of  blue  and  chests  of  damask 
and  thread,  wheat  and  pastry  and  sirup  and  oil  and  balm, 
precious  spices  and  cassia  and  sweet  reed,  and  gold  and 


84  PRINCIPLES   OF   POLITICAL   ECONOMY. 

carbuncles  and  corals  and  rubieso  These  old  Phoenicians 
of  Tyre  colonized  Carthage,  and  thus  bore  a  vast  trade  in 
commodities  to  the  West,  going  overland  into  the  heart 
of  Africa  for  dates  and  salt  and  gold-dust  and  slaves,  and 
by  sea  through  the  Pillars  of  Hercules  northward  to  the 
British  Isles  for  the  sake  of  the  trade  in  tin. 

The  amount  of  transactions  in  commodities,  the  first 
class  of  Valuables,  has  been  constantly  increasing,  under 
natural  impulses  which  we  shall  have  shortly  to  describe, 
from  the  dawn  of  authentic  History  down  to  the  present 
moment;  and  figures  are  baffled  in  expressing  to  our 
minds  the  sum  of  these  transactions  even  in  a  single  coun- 
try, still  more  their  aggregate  in  the  commercial  world. 
The  foreign  trade  of  every  country  is  almost  exclusively 
in  commodities,  and  is  only  a  small  fraction  of  its  domestic 
trade  in  the  same ;  and  so,  when  we  remember  that  the 
foreign  trade  of  the  United  States,  for  example,  under  a 
commercial  system  designed  and  adapted  to  curtail  such 
trade,  amounted  in  1889  to  about  $1,600,000,000,  and  the 
foreign  trade  by  Great  Britain  the  same  year  to  about 
4,000,000,000,  we  gain  a  glimpse,  we  touch  as  it  were  the 
hem  of  the  garment,  of  the  gigantic  traffic  of  the  world 
in  commodities  alone. 

The  Production  of  Commodities  is  the  getting  them  ready 
to  sell  and  the  selling  them. 

1.  We  must  look  first  at  the  REQUISITES  of  such  pro- 
duction. They  are  three,  Natural  Agents,  Human  Efforts, 
Reserved  Capital.  The  following  lines  of  Whittier  touch 
incidentally  on  these  three  requisites,  and  may  serve  us  as 
a  general  introduction  to  them  :  — 

"  Speed  on  the  ship !  —  But  let  her  bear 

No  merchandise  of  sin, 
No  groaning  cargo  of  despair 
Her  roomy  hold  within. 


MATERIAL  COMMODITIES.  85 

"  No  Lethean  drug  for  Eastern  lands, 

No  poison-draught  for  ours  : 
But  honest  fruits  of  toiling  hands, 
And  Nature's  sun  and  showers ! " 

Natural  Agents  include  not  only  "  Nature's  sun  and  show- 
ers," but  also  all  the  forces  and  fertilities  and  materials  of 
free  Nature,  that  men  may  and  do  avail  themselves  of  in 
preparing  commodities  to  exchange  with  the  commodities 
of  other  men.  Of  higher  rank  in  Production  than  these 
natural  agencies  are  the  Efforts  of  men  in  molding  them  so 
as  to  answer  other  men's  Desires,  of  which  efforts  the  "toiling 
hands "  of  the  poet  are  a  symbol.  They  include  also  the 
inventive  brains  and  eloquent  tongues  and  the  skilful 
manipulations  of  every  name.  The  poet's  "ship "is  an 
instance  of  capital,  which  is  always  a  result  of  previous  toil 
reserved  to  help  on  some  future  sales.  These  three  ele- 
ments, Nature,  Labor,  Capital,  conspire  in  all  production  of 
commodities.  Nature  comes  first  with  her  free  forces  and 
materials;  and  then  present  toil  aided  by  the  results  of 
past  toil  in  the  form  of  capital  does  all  the  rest  in  get- 
ting commodities  ready  to  sell  and  selling  them.  Let  us 
now  note  each  of  these  three  a  little  more  closely. 

(a)  Natural  Agents.  The  most  important  point  about 
these  is,  that  they  are  the  free  gifts  of  God,  and  continue  so 
throughout  the  complications  and  transformations  wrought 
on  them  and  through  them  by  Labor  and  Capital,  until  the 
material  commodity  of  whatever  kind  is  finally  sold,  and  so 
passes  out  of  the  purview  of  our  Science.  Many  of  the 
gifts  of  God,  like  the  air  we  breathe  and  the  light  in  which 
we  recreate  ourselves  and  the  water  of  refreshment  drunk 
from  spring  or  brook,  do  not  connect  themselves  in  any  way 
with  commodities  bought  and  sold,  and  nobody  ever  thinks 
of  them  as  salable  at  all ;  but  it  has  seemed  and  still  seems 
to  many,  as  if  the  natural  fertility  in  a  land-parcel,  the 


86  PRINCIPLES   OF   POLITICAL  ECONOMY. 

water-fall  along  the  course  of  river  or  stream,  the  timber- 
growth  which  the  hand  of  man  planted  not,  the  deposit  of 
gold  or  coal  in  the  bowels  of  the  earth,  and  other  such-like 
cases  in  which  natural  gifts  do  connect  themselves  with 
human  services  and  then  are  sold,  lifted  the  Va^lue  of  the 
things  sold  above  the  point  to  which  the  mere  human  efforts, 
whether  past  or  present,  would  raise  it.  In  point  of  fact, 
this  seeming  is  not  a  reality,  as  will  fully  appear  in  the 
sequel.  God  is  a  Giver,  and  never  a  Seller;  and  he  has  ar- 
ranged it  so  in  his  great  world  of  gifts,  that,  however  much 
shrewd  men  may  try  to  monopolize  these  gifts  and  then 
dole  them  out  to  other  men  for  pay,  they  are  always  prac- 
tically thwarted  in  the  attempt.  God  himself  never  takes 
pay  for  anything,  and  has  never  authorized  anybody  to 
take  pay  in  his  behalf ;  and  when  this  role  of  Seller  of  free 
gifts,  which  have  cost  him  nothing  and  which  he  has  not 
improved,  is  taken  up  by  any  one,  he  is  shortly  crowded  off 
the  stage  in  shame  by  other  actors  true  to  Nature. 

This  is  the  place  for  a  grand  induction.  When  we  study 
in  detail  the  free  gifts  of  God  to  this  world  and  its  inhajbi- 
tants,  we  find  they  come  and  keep  coming  in  great  classes, 
This  is  one  of  the  uniformities  of  Nature,  on  whose  solid 
ground  men  tread  and  stride  in  safe  inductive  reasoning. 
Can  a  farmer  get  pay  in  the  price  of  his  grain  for  the  orig- 
inal fertility  of  his  field,  which  neither  he  nor  his  fathers 
nor  his  neighbors  have  bettered  or  made  more  available  ? 
Doubtless  he  would  be  glad  to  do  so,  doubtless  he  ivould  do 
so,  were  it  not  for  the  primary  fact,  that  such  fertilities  as 
his  are  in  a  class  of  fields,  that  other  men  in  more  or  less 
proximity  to  him  raise  grain  on  other  fields,  whose  original 
fertility  is  equal  to  that  in  his  field ;  and  some  of  these  other 
men  in  common  competition  with  the  rest  as  sellers  will  be 
willing  to  part  with  their  grain  for  a  price  which  will  be  a 
fair  equivalent  for  the  onerous  human  services  rendered 


MATERIAL  COMMODITIES.  87 

in  getting  their  grain  ready  to  sell  and  selling  it ;  and  the 
free  action  of  these  men  as  sellers  will  tend  to  fix  a  general 
market-rate  for  grain  then  and  there,  at  which  rate  all  must 
sell  whether  they  will  or  nill ;  and  where  now  is  the  effect 
on  price  of  God's  free  gift?  It  is  still  free. 

Here  is  a  fine  water-fall  on  the  bounding  river,  the 
banks  are  low  at  this  point,  just  the  place  for.  mill  and 
factory,  the  weight  of  God's  free  water  will  turn  the 
wheels,  a  hamlet  will  grow  up  around  them  —  perhaps  a 
city,  —  can  the  riparian  owner  charge  a  fancy  price  for  site 
of  dam  and  mill  ?  He  might  under  some  circumstances ; 
but  the  same  river  doubtless,  above,  below,  rolling  over 
similar  geological  strata,  leaps  and  falls  at  other  points 
also ;  there  are  other  owners  of  mill-privileges  within  hail ; 
besides,  there  are  other  streams  and  tributaries  in  the 
region  round  about ;  and  water  has  a  knack  of  dropping  to 
the  lower  levels.  God's  gifts  are  broad  in  classes  ;  compe- 
tition naturally  has  free  play ;  natural  agents  are  an  essen- 
tial factor  in  commodities ;  so  and  more  so  are  human 
efforts ;  but  Values  tend  perpetually  and  powerfully  under 
natural  competition  between  men  as  sellers  to  proportion 
themselves  to  the  onerous  human  efforts  involved,  and  to 
eliminate  completely  from  all  influence  on  themselves  the 
broad  and  bountiful  gifts  of  Providence. 

What  has  been  observed  to  be  true  in  respect  to  two  or 
three  or  more  of  the  classes  of  God's  free  gifts  to  men,  or 
in  men,  may  almost  certainly  be  inferred  to  be  true  of  all 
such  classes.  Therefore,  inductively,  such  free  gifts  have 
no  effect  on  Values  to  lift  them,  their  influence  being  elimi- 
nated by  human  competition.  Of  course,  if  there  be  unique 
cases  of  remarkable  gifts,  falling  in  no  class,  subject  conse- 
quently to  no  competition,  one  cannot  say  confidently 
that  the  free  element  in  conjunction  with  the  onerous 
element  may  not  make  the  return-service  greater  than  it 


88  PRINCIPLES   OF  POLITICAL  ECONOMY. 

would  be  otherwise.  It  may,  or  it  may  not,  make  it  greater. 
There  is  no  living  principle  at  work  in  such  cases,  that 
makes  it  certain,  that  the  return-service  will  not  be  greater. 
Still,  unique  cases,  if  they  exist,  are  of  little  or  no  con- 
sequence in  Economics.  They  are  most  remarkably  few, 
at  all  events.  Where  come  in  the  solitary  gifts,  that  may 
later  be  connected  with  Valuables,  on  the  round  earth  as 
God  fashioned  it?  Gold,  silver,  diamonds,  copper,  coal, 
tin,  amber,  spice-shrubs,  chinchona-trees,  and  all  such 
things,  have  been  scattered  too  widely  and  liberally  for 
individuals  to  monopolize  them,  or  even  combinations  of 
men  unless  they  be  assisted  by  law.  Where  even  are 
the  unique  cases  of  God-given  talent  or  genius  in  men 
themselves,  such  as  may  become  connected  with  Valuables 
of  the  second  class  ?  Daniel  Webster  had  his  competitors 
in  the  Court-room  and  in  the  Senate,  Ben  Jonson  did  not 
let  Shakspeare  have  it  all  his  own  way  on  the  stage,  and 
even  "  Milton's  starry  splendor  "  did  not  make  Paradise 
Lost  sell  well. 

We  must  just  note  here  in  passing  the  supreme  im- 
portance in  an  economical  point  of  view  of  untrammelled 
competition  in  the  sale  of  commodities.  It  is  the  divinely- 
appointed  means,  and  the  only  possible  means,  of  prevent- 
ing wide-spread  injustice  through  Monopoly.  Nothing 
else  in  the  world  can  be  made  effective  to  estop  men  from 
robbing  their  fellow-men  through  exchanges  artificially 
restricted;  from  charging  more  in  the  market  for  their 
wares  than  a  just  compensation  for  their  own  efforts ; 
from  enriching  themselves  by  impoverishing  their  neigh- 
bors; from  worsening  the  quality  of  their  wares  offered 
for  sale ;  and  from  relying  upon  the  artificial  restrictions 
put  on  their  competitors,  rather  than  on  their  own  skill 
and  enterprise  and  the  goodness  of  their  goods,  for  a  mar- 
ket. The  Common  Law  of  England  holds  monopolies  to 


MATERIAL  COMMODITIES.  89 

be  illegal,  and  the  reasons  given  (11  Coke,  84)  are,  first, 
because  the  price  of  the  commodity  will  be  raised ;  second, 
because  the  quality  of  the  commodity  will  not  be  so  good 
and  merchantable  as  it  was  before  ;  and  third,  because  they 
are  apt  to  throw  many  working  people  out  of  employment. 
It  is  nothing  less  than  a  crime  against  Civilization,  than  a 
sin  against  the  clear  ordinance  of  God,  than  an  artificial 
obstruction  to  individual  and  national  Progress,  to  put  up 
bars  and  barriers  by  law  for  the  purpose  of  cutting  off 
competition,  whether  domestic  or  foreign,  either  by  putting 
disabilities  in  the  path  of  any  or  through  monopoly  tariff- 
taxes,  in  the  buying  and  selling  of  useful  commodities 
anywhere. 

(b)  Human  Efforts.  Every  way  unlike  the  free  forces 
and  materials  of  Nature,  indispensable  as  these  are  in  the 
production  of  commodities,  is  the  second  requisite  in  such 
productions,  namely,  the  onerous  efforts  of  men.  Persons 
are  very  different  from  things,  from  powers,  from  lifeless 
materials.  Persons  act  from  motives  only.  Minds  lie 
back  of  bodily  exertions,  impelling  and  guiding  them. 
Such  efforts  as  are  needful  to  mold  materials  into  com- 
modities are  only  put  forth  in  view  of,  and  for  the  sake 
of,  a  remunerative  return;  and  only  rational  beings,  acting 
under  motives  whose  goal  is  in  the  future,  capable  of  fore- 
sight and  of  adapting  means  to  ends,  can  put  forth  such 
efforts.  No  degree  of  training  can  make  even  the  most 
intelligent  animals  capable  in  any  degree  of  that  kind  of 
exertion,  which  we  call  Labor ;  and  there  is  no  improve- 
ment whatever  in  the  methods  of  animals  in  reaching  their 
instinctive  ends,  —  the  beaver  builds  his  dam  and  the  bee 
gathers  and  deposits  the  honey  exactly  as  bees  and  beavers 
did  ages  ago. 

In  the  strictest  sense,  accordingly,  there  is  no  such  thing 
as  physical  labor,  because  the  mental  must  cooperate  with 


90  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  physical  even  in  the  lowest  forms  of  human  exertion ; 
and  in  the  same  sense  there  can  be  no  such  thing  as  exclu- 
sively mental  labor,  for  the  bodily  powers  conspire  more 
or  less  in  the  highest  intellectual  efforts  that  are  ever  sold. 
Nevertheless,  both  the  phrases,  physical  labor  and  mental 
labor,  are  convenient  and  not  harmful,  whenever  on  the 
one  side  the  bodily  powers  seem  to  be  predominant  in  the 
effort,  and  on  the  other  the  intellectual. 

It  is  now  to  be  noticed,  that  all  that  men  can  do,  when 
they  labor  physically,  is  to  move  something.  When  a  man 
works  with  his  hands  or  his  feet  or  his  whole  body,  all 
that  he  does  or  can  do,  is  to  begin  a  series  of  motions  or 
resistances  to  motion,  for  this  good  reason,  human  muscles 
in  their  very  structure  are  capable  only  of  starting  motion 
and  stopping  motion.  All  the  marvellous  results  of  phys- 
ical effort  in  all  the  world  have  flowed  from  so  simple  a 
matter  as  the  contraction  and  expansion  of  muscle ;  and 
the  world  of  materials  is  so  cunningly  constructed,  that, 
when  these  are  moved  into  right  position  by  human  hands, 
or  by  some  form  of  capital  itself  the  result  of  previous 
human  handling,  the  free  powers  of  Nature  do  all  the  rest, 
and  valuable  commodities  are  the  good  outcome.  For  one 
example,  when  the  woodman  fells  a  tree  for  sale,  he  brings 
a  series  of  motions  (labor)  to  bear  upon  the  trunk,  by 
means  of  his  sharp  axe  (capital),  and  then  the  power  of 
gravitation  (nature)  seizes  the  tree  and  brings  it  crashing 
to  the  earth.  For  a  second  illustration,  wool  and  cotton 
have  by  nature  a  certain  tenacity  of  fibre,  and  what  is 
more  to  the  point,  a  certain  kinkiness  of  fibre  easily  inter- 
linking one  with  another  indefinitely  in  length ;  men  move 
these  separate  fibres  in  certain  relations  to  each  other  by 
an  instrument  (capital)  called  a  spindle,  and  the  result  is 
thread ;  then  other  men  move  these  threads  into  relations 
with  each  other  by  means  of  an  implement  (capital)  called 


MATERIAL   COMMODITIES.  91 

a  shuttle,  and  the  outcome  is  a  web  of  cloth ;  lastly,  the 
tailor  moves  his  shears  through  the  cloth,  and  then  his 
needles,  and  the  issue  is  a  coat,  a  commodity,  the  valuable 
for  which  all  these  processes  were  gone  through  with,  and 
by  the  sale  of  which  all  the  onerous  factors  therein  are 
compensated. 

Now,  since  human  muscles  are  soon  wearied  in  action, 
and  since  motion  is  the  only  thing  required  of  men  in  the 
production  of  commodities,  they  naturally  look  around  for 
outside  help  in  this  matter ;  and  the  first  help  they  lighted 
on  for  moving  things  was  the  domestic  animals,  the  ox  and 
ass  and  horse,  doubtless  domesticated  in  the  very  begin- 
nings of  society;  and  as  these  can  be  used  in  so  many 
different  places,  and  for  such  a  variety  of  purposes,  and 
are  so  cheaply  reared,  they  are  exceedingly  useful  as  a 
motive  power,  and  will  probably  never  be  superseded  as 
such.  Inanimate  auxiliaries  in  moving  things  into  right 
position  for  the  production  of  commodities,  such  as  the 
water-wheel  and  wind-mill,  were  undoubtedly  brought  into 
use  much  later ;  and  much  later  still,  steam  and  electricity 
and  other  more  subtle  and  recondite  natural  agents.  All 
of  these  helps,  whether  animate  or  inanimate,  do  but  ca*use 
simple  motions  of  the  same  kind  as  those  caused  by  the 
human  hand.  The  most  ponderous  engine  merely  redupli- 
cates that  which  the  arm  'of  a  child  is  capable  of ;  while  in 
point  of  delicacy  and  firmness  of  touch,  perhaps  no  ma- 
chinery can  subdivide  and  apply  this  motion  so  skilfully 
as  the  human  fingers  can.  It  is  said  that  some  of  the  lace 
made  wholly  by  hand  is  finer  and  more  delicate  than  any 
yet  woven  by  machinery,  although  the  introduction  of 
machinery  into  lace-making  has  cheapened  lace  products 
in  general  to  a  small  fraction  of  their  former  cost. 

What  we  commonly  call  "  Power"  then,  by  whatever 
instrumentality  furnished,  is  simple  auxiliary  motion,  addi- 


92  PRINCIPLES   OF   POLITICAL   ECONOMY. 

tional  to  that  of  physical  human  Labor.  Commodities  are 
produced  in  unlimited  quantity  and  variety  by  such  labor, 
assisted  by  the  free  forces  of  nature  applied  by  means  of 
animals  and  implements,  which  are  capital.  But  such 
labor  is  irksome  as  well  as  wearisome,  and  is  never  ex- 
pended except  in  view  of  a  reward,  which  is  secured  only 
from  the  sale  of  the  finished  commodity. 

(c)  Reserved  Capital.  We  must  examine  the  nature  of 
Capital  with 'care,  and  follow  its  varied  forms  without  con- 
fusion, because  it  is  the  only  other  factor  besides  labor  in 
the  production  of  commodities,  that  has  to  be  paid  for  out 
of  their  sale. 

Simplest  cases  are  always  the  best  in  economical  dis- 
cussions. Let  us  take  for  illustration  a  recently  observed 
case  from  the  gold  hills  of  North  Carolina.  All  the 
methods  are  strongly  primitive,  but  all  the  elements  of 
production  are  present.  A  negro  woman  is  the  laborer, 
the  bits  of  gold  scattered  in  the  soil  are  the  free  gift  of 
nature,  a  bored  log  to  divert  the  water  from  the  mountain 
stream,  and  a  tin  pan  in  which  to  gather  and  wash  the 
sand  and  gravel,  are  two  crude  forms  of  capital ;  free 
gravitation  also  brings  the  water  through  the  log,  and  free 
gravity  carries  down  the  particles  of  gold  to  the  bottom  of 
the  washing-pan,  and  many  other  agencies  of  free  nature 
cooperate  in  this  very  simple  case  of  production ;  and 
besides  the  log  and  the  pan,  there  are  doubtless  some  other 
forms  of  capital,  at  least  the  whittled  plug  to  stop  at  need 
the  flow  of  water  through  the  log.  The  chief  factor  in 
these  processes  of  production  is  still  the  laborer,  the 
motions  of  her  hands  in  stirring  the  sand  and  picking  out 
the  precious  bits  at  the  bottom  of  the  pan  are  the  chief 
motions,  the  labor  is  both  physical  and  mental,  —  no  ani- 
mal could  be  trained  to  adopt  means  to  ends  like  this 
negro  woman. 


MATERIAL   COMMODITIES.  93 

It  is  her  capital  that  now  engages  our  attention.  Any 
Valuable  outside  of  man  himself  reserved  to  assist  in  the 
production  of  further  valuables  is  Capital.  The  idea  of 
growth  and  increase  inheres  in  the  very  word,  which  is 
derived  from  the  Latin  noun,  caput,  a  head,  a  source,  and 
gives  intimation  in  its  etymology  of  its  scientific  meaning. 
The  word,  caput,  is  often  used  in  classical  Latin  for  a  sum 
of  money  put  out  at  interest,  and  its  derivative,  capitale, 
is  also  used  in  the  same  sense,  at  least  in  mediaeval  Latin ; 
and  from  this  form  of  the  word  have  come  into  English 
not  only  Capital,  but  also  by  corruption  Cattle  and  Chat- 
tels. Flocks  and  herds  were  at  one  time  the  principal 
riches  of  our  Saxon  ancestors,  and  also  the  principal  means 
of  increasing  their  riches,  and  in  process  of  time  the  same 
root-word  came  to  be  spelled  differently  as  applied  to  ani- 
mate or  inanimate  things  of  value ;  while  the  notion 
implied  in  the  Latin  caput,  and  in  the  English  source, 
came  along  in  all  three  of  these  words;  and  hence  the 
careful  definition  of  Capital  above  given. 

It  makes  no  difference  whether  the  colored  woman 
bored  her  own  log  by  means  of  an  item  of  capital  already 
existing,  namely,  an  auger,  or  hired  another  person  to 
bore  it  for  her,  or  bought  the  log  already  perforated,  it 
is  an  article  of  Capital,  a  valuable  kept  to  increase  future 
valuables ;  she  might  doubtless  sell  it  for  something  to  a 
new-comer  wishing  to  operate  other  sand  in  the  neighbor- 
hood, but  she  keeps  it  to  help  herself  gather  more  gold  for 
ultimate  sale,  she  practises  what  we  call  in  Economics 
abstinence  and  must  have  her  reward  for  this  in  the  form 
of  profits  from  the  ultimate  sale  of  her  commodity,  gold, 
as  well  as  a  reward  for  her  labor  in  the  form  of  wages  from 
the  same  source.  As  one  person  furnishes  both  the  labor 
and  capital  in  this  case,  there  is  no  actual  division  of  the 
gross  return  into  wages  and  profits,  as  there  always  must 


94  PRINCIPLES   OF  POLITICAL  ECONOMY. 

be  when  separate  parties  furnish  the  two  essential  factors, 
both  of  which  must  be  remunerated  by  the  sale  of  the  com- 
modity. What  is  thus  true  of  the  log,  is  equally  true  of 
the  tin-pan,  and  even  of  the  plug  also,  if  it  be  capable  of 
repeated  use  and  cost  something  of  labor  and  the  help 
of  a  previous  item  of  capital,  namely,  the  jack-knife.  Our 
negro  woman  of  the  South  is  a  small  capitalist  as  well  as 
a  rude  laborer,  and  practises  abstinence  as  well  as  puts  forth 
exertion,  and  consequently  is  entitled  to  receive  profits  as 
well  as  wages  in  the  return  she  gets  for  her  gold-dust  when 
she  sells  it. 

We  are  now  beginning  to  see  what  the  nature  of  Capital 
is,  and  what  the  motives  are  for  employing  it.  In  the  pro- 
duction of  commodities  Capital  is  always  something  that 
makes  easier  to  the  producers  the  getting  ready  to  sell  and 
the  selling  of  future  commodities.  The  capital  always 
spares  more  or  less  of  onerous  and  irksome  human  exer- 
tion. It  always  mediates  between  some  free  force  of 
Nature  and  some  otherwise  more  onerous  effort  of  men. 
The  sole  motive  to  employ  capital  in  any  one  or  in  all  of 
its  multitudinous  forms  from  the  simplest  to  the  most  com- 
plex is  to  throw  off  upon  the  ever-willing  shoulders  of 
Nature  some  part  of  the  irksome  effort  that  would  other- 
wise come  to  the  easily- wearied  muscles  of  men.  Nature  is 
"  good,"  to  use  a  commercial  term,  for  all  she  can  be  made 
to  carry  of  men's  work,  through  implements  devised  and 
machinery  contrived  to  apply,  to  commodities  in  every 
stage  of  their  transformation  and  transportation  till  the 
last,  the  ever-present  potencies  of  this  physical  world. 
These  potencies  cost  nothing.  The  implements  and  ma- 
chinery cost  much  in  present  labor  and  previously  created 
capital.  The  ultimate  sale  of  commodities  must  make 
return  for  all  the  forms  of  capital  employed  in  their  pro- 
duction, in  the  shape  of  Profits,  the  reward  of  abstinence; 


MATERIAL  COMMODITIES.  95 

and  for  all  the  forms  of  direct  labor  employed  in  their  pro- 
duction, in  the  shape  of  Wages,  the  reward  of  personal 
effort. 

The  beaver  gnaws  down  the  tree  with  his  teeth  from 
generation  to  generation  in  precisely  the  same  manner; 
but  man  is  a  being  more  nobly  endowed  than  the  beaver, 
and  no  sooner  had  he  occasion  to  fell  trees,  than  something 
of  the  nature  of  an  axe  suggested  itself  to  his  ingenuity. 
It  is  true,  that  his  earliest  attempts  at  axe-making  were 
probably  of  the  rudest  sort,  but  just  as  soon  as  anything 
was  devised,  whether  of  flint  or  shell  or  metal,  that  ren- 
dered easier  the  felling  of  a  tree,  Capital  made  a  beginning 
along  that  line  of  obstacles.  Our  chief  interest  in  studying 
the  implements  of  the  successive  so-called  Ages  of  Stone 
and  Bronze  and  Iron,  is  to  witness  the  increasing  degrees  of 
ingenuity  displayed  by  those  pre-historic  men.  Among 
the  more  gifted  races,  progress  in  this  direction  was  per- 
haps more  rapid  than  we  are  wont  to  think  it  was,  since 
Tubal-Cain,  the  first  artificer  of  record,  is  said  to  have 
"  hammered  all  kinds  of  implements  out  of  copper  and  iron  " 
(Gen.  iv,  22).  Lucretius,  writing  in  the  century  before 
the  Christian  era,  put  down  the  following  lines  in  vigorous 
Latin,  as  translated  by  Mason  Good :  — 

"Man's  earliest  arms  were  fingers,  teeth,  and  nails, 
And  stones,  and  fragments  from  the  branching  woods ; 
Then  copper  next ;  and  last,  as  later  traced, 
The  tyrant  iron." 

We  are  at  no  loss,  then,  to  explain  the  origin  of  Capital 
and  its  motives.  Tools  are  invented  and  employed  for  no 
other  reason  than  this,  that,  by  means  of  their  help,  the 
human  efforts  are  lessened  relatively  to  the  given  satis- 
factions. Since  it  requires  tools  to  make  tools,  the  progress 
of  this  branch  of  capital  must  have  been  relatively  slow  at 


96  PRINCIPLES   OF   POLITICAL  ECONOMY. 

first;  but,  since  every  advance  in  mechanical  contrivance 
makes  still  further  advances  easier,  there  is  a  natural 
tendency,  which  i'acts  abundantly  exemplify,  to  a  more 
and  more  rapid  progression  in  the  number  and  perfection 
of  all  implements  of  production.  The  same  motive  that 
impelled  to  the  first  invention,  has  impelled  to  the  whole 
series  of  inventions  since,  and  will  constantly  impel  to 
further  inventions  till  the  end  of  time.  Every  step  of  this 
progress  gives  birth  to  a  larger  and  still  larger  proportion  of- 
satisfactions  relatively  to  efforts ;  marks  an  increasing  con- 
trol on  the  part  of  man  over  the  powers  of  Nature ;  and 
gives  promise  for  the  time  to  come  of  greater  advantages 
still  in  both  of  these  directions.  The  powers  of  Nature, 
such  as  those  which  make  the  grain  grow,  bring  the  tree 
down,  turn  the  water-wheel,  impel  the  locomotive,  and 
send  the  message  round  the  world,  all  stand  ready  to  slave 
in  the  service  of  man;  but  in  order  to  make  their  aid 
available  for  human  purposes,  there  must  be  a  plough,  an 
axe,  a  wheel,  an  engine,  an  electric  machine ;  and  it  is 
because  capital  brings  gratuitous  natural  forces  into  service, 
and  the  more  so  as  capital  progresses,  that  the  Value  of 
those  commodities  produced  by  the  aid  of  capital  tends 
constantly  to  decline  as  compared  with  those  commodities, 
in  the  production  of  which  capital  conspires  less. 

It  is  already  plain,  that  the  class,  Capital,  is  a  smaller 
and  a  peculiar  sub-class  under  the  great  class,  Valuables ; 
nothing  can  become  Capital  until  it  first  become  a  Val- 
uable, and  then  be  capitalized  by  a  distinct  act  or  intention 
on  the  part  of  the  owner  to  reserve  it  in  his  own  hands 
as  an  aid  in  further  production,  or  transfer  it  to  other 
hands  to  be  so  used,  he  meanwhile  receiving  profits  as  the 
reward  of  his  abstinence ;  only  a  transferable  valuable, 
accordingly,  can  become  Capital  in  any  case,  that  is  to 
say,  it  must  be  either  a  Commodity  or  a  Credit,  since  per- 


MATERIAL  COMMODITIES.  97 

sonal  services,  though  they  may  be  sold,  cannot  be  put 
over  into  the  hands  of  another  to  be  used  in  production, 
and  therefore  cannot  become  Capital  in  any  case ;  and  the 
chief  peculiarity  of  this  sub-class,  Capital,  is,  unlike  the 
three  great  classes  of  Valuables,  each  of  which  is  utterly 
distinct  from  the  other  two,  so  that  a  Commodity  can 
never  become  a  Credit  or  a  personal  Service  either  of  the 
others,  that  Capital  as  a  class  has  extremely  flexible  limits, 
and  consequently  certain  Commodities  and  Credits  may 
easily  enough  be  Capital  to-day,  and  fall  back  to-morrow 
into  their  respective  classes  of  mere  Valuables  and  the 
next  day  come  out  from  the  class  Non-Capital  into  the 
class  Capital  again.  The  same  commodities  and  credits 
may  be  capital  at  one  time,  and  non-capital  at  another, 
though  they  must  be  valuable  all  the  time,  or  cease  to  be 
commodities  and  credits.  When  it  is  said  that  a  young 
man's  talents  and  skill  are  his  "capital,"  the  word  of 
course  is  used  in  a  metaphorical  sense,  and  the  meaning  is, 
that  skill  and  talents  are  like  capital  in  some  respects. 
Popular  language  is  not  scientific. 

Cicero  wrote  long  ago :  "  Optimum  et  in  privatis  f amiliis 
et  in  republica  vectigal  est  parsimonia."  Abstinence  is  the 
best  means  of  revenue  as  well  in  private  families  as  in  the 
/State.  The  source  of  Capital  in  a  distinct  act  of  will  saving 
or  sparing  from  present  use  (parsimonia')  a  valuable  com- 
modity or  credit,  and  the  quick  nature  of  Capital  as  adding 
to  itself  (vectigal)  in  profits,  are  both  brought  out  in  this 
Latin  maxim,  which  is  rather  an  expression  of  an  old  and 
ingrained  Roman  sentiment  than  anything  original  with 
Cicero.  It  is  the  very  nature  as  well  as  the  very  name  of 
"  Capital "  to  increase  itself  by  rapid  increments.  It  is  as 
well  the  Stream  as  the  Source.  For  example,  any  sum  of 
money  soon  doubles  itself  when  put  out  at  compound 
interest,  because  the  original  sum  increases  day  and  night 


PRINCIPLES    OF   POLITICAL   ECONOMY. 

until  it  be  repaid.  It  is  of  the  essence  of  every  form  of 
Capital  to  make  growth,  because  its  sole  purpose  as  such  is 
to  become  an  aid  to  future  and  further  production.  A 
trowel  in  the  hands  of  a  mason,  which  is  capital,  pays  for 
itself  every  day  he  works  with  it,  and  perhaps  every  hour 
of  the  day,  in  the  increased  production  wrought  by  means 
of  it.  The  wheel,  which  free  water  turns,  though  a  costly 
implement,  repays  that  cost  a  hundred  fold  in  the  addi- 
tional bushels  of  wheat  turned  into  flour  through  its  aid  as 
capital.  So  of  all  implements.  So  of  all  machinery.  So  of 
all  means  of  transportation:  ships,  canals,  railroads. 

There  was  a  strange  prejudice  in  ancient  and  mediseval 
times  against  this  natural  increase  of  capital  out  of  its  own 
bowels,  as  it  were,  owing  probably  to  this  dictum  of 
Aristotle :  "  For  usury  is  most  reasonably  detested,  as  the 
increase  of  our  fortune  arises  from  the  money  itself,  and  not 
by  employing  it  for  the  purpose  for  which  it  was  intended" 
In  1360,  a  French  bishop,  Nicole  Oresme,  repeats  the  error 
of  Aristotle  under  the  same  rhetorical  image :  "  It  is  mon- 
strous and  contrary  to  Nature  that  a  barren  stock  should  give 
birth,  that  a  thing  sterile  in  its  whole  being  should  fructify 
and  be  multiplied  from  itself,  and  such  a  thing  is  money" 
Even  Shakspeare  catches  up  the  old  figure :  "  Is  your  gold 
and  silver  ewes  and  rams?"  Shylock  answers:  "J  cannot 
tell;  I  make  it  breed  as  fast"  In  the  light  of  the  three 
requisites  of  Production,  in  the  light  of  the  purpose  and 
wisdom  of  God  in  arranging  the  active  forces  of  this 
world,  the  prejudice  in  question  disappears,  and  intel- 
ligence rejoices  in  the  ever-increasing  use  of  Capital  as  the 
handmaid  of  Labor,  in  the  quick  and  sure  reward  of  him 
who  practises  abstinence,  in  the  production  of  commodities 
constantly  made  easier  and  cheaper  in  all  directions,  in  a 
scale  of  comforts  for  the  masses  of  men  assuredly  rising,  in 
a  divinely  appointed  force  lifting  like  Christianity  itself 
upon  the  otherwise  sagging  condition  of  mankind, 


MATERIAL  COMMODITIES.  99 

Capital  assumes  but  two  economical  forms,  namely, 
Circulating  Capital  and  Fixed  Capital.  Circulating  Cap- 
ital is  all  those  capitalized  products,  whether  commodities  or 
credits,  the  returns  for  the  sale  or  use  of  which  are  derived 
at  once  and  once  for  all.  All  circulating  capital  will  be 
found  in  one  or  other  of  the  following  sub-forms :  (1)  raw 
materials;  (2)  wages  paid  out  in  view  of  an  ultimate 
profit ;  (3)  completed  products  on  hand  for  sale ;  and 
(4)  products  bought  and  held  for  the  sake  of  resale.  The 
crucial  test  of  circulating  capital  is  the  question,  Are  the 
returns  to  be  secured  by  the  single  use  or  single  transfer  of 
that  particular  product  ?  Tools,  for  example,  in  the  hands 
of  him  who  has  manufactured  them  for  sale  is  circulating 
capital.  Fixed  Capital  is  all  those  capitalized  products, 
which  are  purchased  or  held  with  a  view  of  deriving  an 
income  from  their  delayed  and  repeated  use.  All  fixed 
capital  will  probably  be  found  in  one  or  other  of  the 
sub-forms  following :  (1)  tools  and  machinery  in  use ; 
(2)  buildings  used  for  productive  purposes;  (3)  permanent 
improvements  in  land  parcels;  (4)  investments  in  aid  of 
locomotion  and  transportation;  (5)  products  rented  or 
retained  for  that  purpose;  and  (6)  the  national  money 
considered  as  a  whole. 

2.  We  will  next  look  at  the  essential  CONDITIONS  of  the 
production  of  Commodities.  These  are  also  three,  as  are 
the  Requisites,  namely,  Association,  Invention,  Freedom. 
More  or  less  will  men  make  and  sell  to  one  another 
commodities  in  any  state  of  society,  in  which  there  is 
permitted  any  considerable  degree  of  association  of  men 
with  men  locally  or  commercially,  in  which  is  encouraged 
in  any  way  the  universal  spirit  of  invention  or  the  desire  to 
get  hard  things  done  easier,  and  in  which  some  degree  of 
liberty  of  action  and  security  of  property  and  equality  of 
privileges  is  guaranteed;  but  it  is  very  plain,  that  the 


100  PRINCIPLES    OF  POLITICAL  ECONOMY. 

production  of  commodities  will  increase  in  all  directions  and 
become  the  greatest  in  that  age  and  country  when  and 
where  are  allowed  the  closest  ties  of  human  association 
both  in  place  and  in  commerce,  the  freest  scope  and  largest 
rewards  of  inventive  genius,  and  the  highest  possible  degree 
of  liberty  and  security  and  equality  of  rights.  Let  us 
illustrate  from  a  state  of  things  in  the  southern  half  of  the 
United  States  during  the  first  half  of  the  nineteenth 
century.  For  the  most  part  the  land  owners  lived  on 
isolated  plantations  widely  separate  from  one  another,  these 
plantations  were  cultivated  by  gangs  of  slaves,  a  system 
that  tends  to  bring  all  manual  labor  into  contempt,  the  poor 
whites  scattered  in  hamlets  felt  themselves  above  the  slaves 
and  beneath  the  masters,  intercourse  between  the  three 
classes  was  little,  opportunity  to  better  essentially  their 
condition  was  denied  to  all  three  alike,  there  were  but  few 
cities  sprinkled  over  the  vast  territory  and  these  relatively 
small,  the  only  commodity  produced  on  a  large  scale  was 
raw  cotton,  the  simple  device  for  ginning  this  had  been 
invented  in  the  decade  preceding  by  a  college  boy  from 
Connecticut,  the  agricultural  implements  were  of  the  rudest 
kind,  even  the  coarse  shoes  for  the  slaves  were  bought 
at  the  North; — in  short,  the  degree  of  association  and 
invention  and  freedom  was  each  so  low,  that  the  production 
of  commodities  was  exceedingly  small,  even  as  compared 
with  what  that  production  became  in  one  quarter  of  a 
century  after  the  abolition  of  slavery. 

(a)  Association.  If  we  may  continue  for  purpose  of 
illustration  our  childhood  trust  in  the  story  of  De  Foe, 
Robinson  Crusoe  came  to  lead  a  very  tolerable  life  upon 
his  desolate  island  by  means  of  his  own  industry  directed 
so  as  to  satisfy  his  own  wants  by  his  own  efforts.  He  did 
everything  for  himself,  and  had  no  opportunity  to  buy 
anything  or  sell  anything,  The  whole  course  of  such  an 


MATERIAL   COMMODITIES.  101 

isolated  life  could  never  develop.the  idea  of  Value,,  would 
require  no  such  word  as  Comriy>dit^es  Vr,  suggest  their 
production,  and  such  a  man  \vliile,  solitary  /dpf/n  4n£  ^isjjand 
could  not  possess  Property  inJjtil©'tr46>sens'e'o¥''tnktJVo'rd. 
Association  is  the  first  main  condition  of  Production, 
because  of  the  natural  obstacles  interposed  between  the 
isolated  man  and  the  supply  of  his  various  wants.  If  any 
one  man  try  to  surmount  a  considerable  number  of  these 
natural  obstacles,  he  must  miserably  fail,  because  his 
powers  are  not  adequate  to  the  task ;  and  hence  it  follows, 
that,  in  a  state  of  isolation,  men's  wants  exceed  their  powers; 
but  now  let  the  same  man  devote  himself  to  overcome  a 
single  class  of  obstacles,  for  instance,  those  in  the  way  of 
procuring  suitable  clothing,  and  his  powers  are  adequate 
to  this,  he  soon  acquires  skill  in  it,  he  learns  to  avail  him- 
self of  the  free  help  of  Nature  and  the  facilitating  pro- 
cesses of  art,  he  is  able  to  realize  large  products  along  his 
line,  and  is  now  ready  to  offer  his  surplus  in  exchange 
with  other  men,  who  meanwhile  have  been  giving  them- 
selves each  to  another  class  of  obstacles,  have  concen- 
trated efforts  and  skill  upon  them,  have  succeeded  by 
the  help  of  Nature  and  art  in  surmounting  them,  and 
are  now  ready  to  offer  their  surplus  commodities  in  ex- 
change for  others ;  and,  the  exchanges  beginning  to  be 
made  in  all  directions,  men  find  that  they  thus  obtain 
vastly  greater  satisfactions  for  their  various  desires  than 
they  could  possibly  get  by  direct  efforts :  so  that  we  may 
even  say,  that,  in  a  state  of  society  through  association, 
mevbs  powers  tend  to  overtake  their  wants. 

Without  association  with  his  fellow-men,  there  is  no 
creature  so  helpless,  so  unable  to  reach  his  true  end,  as  is 
man ;  and  therefore  it  is,  that  the  impulse  to  association 
is  one  of  the  strongest  of  our  natural  impulses.  Men  come 
together,  as  it  were  by  instinct,  into  society;  and,  thus 


102  PKESTCIPLES   OF   POLITICAL   ECONOMY. 

associating  themselves  together,  it  is  soon  discovered,  not 
only  that  there  ttre  various  desires  in  the  different  mem- 
bers'of  tiae  ?  community,  Which  are  now  readily  met  by 
co6per*a'ti(5ii  and  mutual1  exchange,  but  also  that  there  are 
very  different  powers  in  the  different  individuals  in  rela- 
tion to  those  obstacles  which  are  to  be  surmounted.  The 
tastes  and  aptitudes  of  different  men  are  very  diverse. 
There  is  a  great  diversity  in  natural  gifts.  One  man  has 
physical  strength,  another  mechanical  ingenuity,  a  third  a 
philosophical  turn,  and  a  fourth  a  bent  and  genius  for 
traffic.  Now,  then,  Nature  speaks  in  as  loud  a  voice  as 
she  can  utter,  in  favor  of  such  a  degree  of  association  and 
exchange  as  shall  allow  a  free  development  of  these  vary- 
ing capacities,  while  they  work  upon  the  obstacles  to  the 
gratification  of  men's  wants,  which  lie  appropriately 
opposite  to  them. 

Men  must  come  together  either  locally  or  commercially, 
must  learn  each  other's  wants,  must  compare  with  each 
other  powers  and  tastes  and  opportunities,  must  come  to 
have  some  confidence  in  each  other,  and  then  they  will 
begin  by  rendering  mutual  services  back  and  forth  to  ex- 
perience the  better  satisfactions  and  the  new  strength  that 
exchanges  bring.  Whatever  improves  the  character  of 
men,  and  thus  leads  to  greater  confidence  among  them, 
will  enlarge  their  commerce,  and  knit  closer  and  wider 
ties  of  association  and  production.  Neighborhood  associ- 
ations and  productions  soon  create  a  surplus  to  be  ex- 
changed for  something  else  with  other  neighborhoods ; 
parts  of  single  nations  however  remote  from  each  other 
find  a  relative  diversity  of  advantage  and  an  increasing 
profit  in  connecting  themselves  by  the  ties  of  trade  ;  and 
the  separate  nations  learn,  though  late,  that  they  are  only 
one  great  family  for  the  grand  ends  of  production  and  prog- 
ress. Even  within  the  single  nation,  there  is  a  strong 


MATERIAL  COMMODITIES.  103 

tendency  for  particular  trades  to  localize  themselves  in  one 
spot,  as  for  instance,  the  manufacture  of  skin  gloves  has 
centered  itself  for  the  United  States  in  Gloversville, 
N.Y. ;  and  so  in  the  great  cities  that  are  centres  of  dis- 
tribution, for  example,  the  wholesale  grocers  of  St.  Paul 
are  on  one  street,  the  dry  goods  houses  of  Boston  are  in 
close  proximity,  and  the  booksellers  of  New  York  are 
tending  towards  each  other  in  place. 

Now,  this  broad  association  as  between  persons  and 
nations,  instead  of  detracting  at  all  from  the  individuality 
and  power  of  each,  is  the  very  thing  that  brings  out  the 
individuality  and  intensifies  the  power  of  each ;  because  it 
is  only  thus  that  full  scope  is  given  to  the  exercise  and 
development  of  each  peculiar  power  whether  of  the  indi- 
vidual or  the  nation.  Hence  the  strong  tendency  every- 
where visible  in  the  world  of  commerce  towards  Specialties : 
the  old  single  trades  and  vocations  and  professions  are 
constantly  breaking  themselves  up  into  parts,  and  each 
man  is  taking  up  that  for  which  he  is  naturally  best  fitted 
and  has  specially  trained  himself,  and  all  to  the  great 
advantage  of  individuality  and  personal  power  and  prog- 
ress. Mr.  Carey  is  certainly  right  in  his  principle  (much 
insisted  on  in  all  his  books),  that  the  degree  of  individu- 
ality depends  on  the  degree  of  association,  each  advancing 
hand  in  hand  with  the  other ;  and  he  is  as  certainly  wrong 
in  lacking  confidence  in  the  natural  forces  at  work  tending 
to  the  highest  degree  of  association  and  consequently  to 
the  highest  degree  of  individuality.  These  forces  are 
immensely  strong.  Men  come  together  as  it  were  by 
instinct,  being  conscious  of  individual  feebleness ;  personal 
interest  is  soon  seen  to  follow  the  bent  of  social  attrac- 
tion ;  a  just  sense  of  personal  dignity  and  importance  in 
being  a  substantive  part  in  the  ongoings  of  society  enor- 
mously strengthens  the  impulse  to  association  and  indi- 


104  PRINCIPLES   OF   POLITICAL   ECONOMY. 

viduality ;  the  progress  of  each,  and  all  in  achievement  and 
elevation  still  further  knits  the  ties  of  union ;  and  lastly, 
a  strong  feeling  of  social  justice,  of  what  is  due  to  others 
as  well  as  to  one's  self,  —  that  every  man  has  an  inalien- 
able right  to  his  full  opportunity  and  all  that  that  implies, 
to  buy  and  sell  and  get  gain,  to  life  and  liberty  and  the 
pursuit  of  happiness.  When  motives  and  powers  and 
potencies  such  as  these,  proven  to  be  universal  by  broad 
and  constant  inductions,  fail  as  economical  forces  to  secure 
association  and  individuality,  then  it  will  be  time  to  look 
around  with  Mr.  Carey  for  some  inferior  and  factitious 
force. 

(b)  Invention.  This  is  the  second  main  condition  in 
the  production  of  commodities ;  because  production  is  pro- 
cesses, getting  something  ready  to  sell  and  selling  it ;  and 
Nature  stands  ever  ready  with  her  free  agencies  to  facili- 
tate these  processes,  just  so  far  as  the  inventive  brain  of 
man  can  contrive  to  unite  the  two.  Invention  is  the  mar- 
riage of  a  gratuitous  force  to  an  onerous  process,  and  the 
fruit  of  that  union  is  an  easier  way  and  multiplied  utilities. 
There  are  some  in  every  considerable  community,  and 
more  in  every  community  enlarged  by  the  natural  associa- 
tion but  just  now  described,  who  have  the  knack  of  con- 
trivance, who  find  their  joy  in  finding  a  new  power  in 
Nature  or  some  new  application  of  an  old  power ;  were  it 
not  for  unhindered  association  and  free  exchange,  the 
individuality  of  these  would  be  effectually  repressed,  and 
they  would  have  to  drudge  for  their  daily  bread ;  but  the 
importance  of  inventors  is  well  understood  in  every  pro- 
gressive community,  and  under  advanced  exchanges  their 
livelihood  is  guaranteed  by  those  who  hope  to  profit  by  its 
results  while  their  work  is  maturing;  and  Production 
rejoices  and  grows  strong  and  throws  out  unnumbered 
hands  to  make  instant  use  of  the  new  power  and  the  easier 


MATERIAL  COMMODITIES.  105 

processes,  in  order  to  multiply  commodities  in  number  and 
variety. 

As  an  illustration  of  all  this,  the  reader  will  be  inter- 
ested in  a  brief  account  of  the  series  of  Inventions  made 
in  Great  Britain  during  the  last  third  of  the  eighteenth 
century,  in  consequence  of  which  the  Cotton  Industry  was 
established  in  that  country  in  such  preeminence  as  has  to 
this  day  baffled  the  attempts  of  all  other  countries  even  to 
approximate  it. 

We  catch  our  first  glimpse  of  Cotton  in  the  pages  of 
Herodotus,  who  wrote  more  than  400  years  B.C.  in  relation 
to  India  as  follows :  "  There  are  trees,  ivhich  grow  wild 
there,  the  fruit  ivhereof  is  a  wool  exceeding  in  beauty  and 
goodness  that  of  sheep.  The  natives  make  their  clothes  of 
this  tree-wool"  This  passage  is  interesting,  as  showing 
that  the  first  comparison  of  cotton  with  wool  exhibited 
their  resemblance  in  whiteness  and  in  kinkiness,  which 
latter  quality  enables  them  both  to  be  spun  into  yarn ;  as 
showing  also,  that  the  Hindoos  very  early  both  spun  and 
wove  cotton,  and  then  made  it  into  clothes ;  and  as  show- 
ing lastly,  the  appropriateness  of  the  original  name  given 
to  cotton  in  Europe,  namely,  "  tree-wool,"  a  name  by 
which  the  Germans  still  designate  it  (Baumwolle).  If 
the  extreme  East  furnishes  the  first  notice  of  cotton,  the 
extreme  West  follows  it  next  in  order.  When  the  Span- 
iards discovered  Central  and  Southern  America  in  the  first 
quarter  of  the  sixteenth  century,  they  reported  that  they 
found  the  Mexicans  clothed  in  cotton  cloth. 

But  wool  was  the  staple  of  England.  Parliament  and 
people  were  jealous  of  cotton,  lest  it  might  prove  a  rival 
to  wool,  and  actually  prohibited  the  introduction  of 
printed  calicoes  (so  called  from  Calicut  in  India  whence 
they  were  exported).  The  taste,  however,  for  calicoes 
increased  in  spite  of  the  prohibition,  which  was  afterwards 


106  PK1NCIPLES   OF   POLITICAL  ECONOMY. 

intermitted  for  a  revenue  duty  on  plain  cotton,  which  was 
then  rudely  printed  on  blocks  in  London,  Manchester, 
and  elsewhere ;  but  the  prohibition  of  Parliament  against 
wearing  printed  calicoes  was  first  repealed  in  1736.  Fif- 
teen years  later  the  United  Kingdom  imported  only  2,976,- 
610  Ibs.  of  raw  cotton,  and  exported  only  £45,986  of 
cotton  goods ;  in  one  century  the  import  of  cotton  became 
500  times  larger  than  that,  and  the  export  of  cottons  1300 
times  larger  than  that ;  and  this  prodigious  result  was  due 
mainly  to  three  or  four  inventions  occurring  within  short 
times  of  each  other,  by  means  of  which  the  free  forces  of 
nature  took  the  place  of  the  onerous  efforts  of  men. 

John  Hargreaves,  a  poor  weaver  in  the  neighborhood  of 
Blackburn  in  Lancashire,  was  returning  home  from  a  long 
walk,  in  which  he  had  been  purchasing  a  further  supply 
of  yarn  for  his  own  loom.  Spinning  at  that  time  only 
admitted  of  one  thread  spun  at  a  time  by  one  pair  of 
hands,  one  of  which  turned  the  wheel  and  thus  made  the 
single  spindle  rapidly  revolve,  and  the  other  hand  pulled 
gently  upon  the  "roving"  attached  to  the  spindle  and 
thus  drew  it  out  to  the  requisite  tenuity  twisted  into  yarn. 
The  "  carding,"  then  effected  by  rude  instruments  called 
hand-cards,  by  means  of  which  the  fibres  of  the  cotton 
were  disentangled  and  straightened  and  laid  parallel  with 
each  other  j  and  the  "roving,"  a  process  by  which  the 
short  fleecy  rolls  stripped  off  the  hand-cards  were  applied 
to  the  spindle  and  made  into  thick  threads  only  slightly 
twisted,  were  the  two  preparatory  operations  for  the 
spinning.  All  these  operations  were  slow  and  clumsy, 
and  the  consequent  expensiveness  of  the  yarn  formed  a 
great  obstacle  to  the  establishment  of  the  cotton  manu- 
facture in  England.  The  improvements  made  in  the  loom 
of  that  period  by  Kay,  father  and  son,  had  shortly  before 
doubled  the  power  of  each  weaver,  and  the  spinners  could 
not  keep  up  in  furnishing  material  to  the  weavers. 


MATERIAL  COMMODITIES.  107 

As  Hargreaves  entered  his  cottage  from  this  excursion 
to  get  yarn  to  keep  his  loom  agoing,  his  wife,  Jenny,  acci- 
dentally upset  the  spindle,  which,  as  was  her  wont,  she 
was  diligently  using.  Her  husband  noticed  that  the  spin- 
dle, which  was  now  thrown  into  an  upright  position, 
continued  to  revolve  just  as  when  horizontal,  and  that  the 
thread  was  still  spinning  in  his  wife's  hands.  The  idea 
immediately  occurred  to  him,  that  it  might  be  possible  to 
connect  a  considerable  number  of  upright  spindles  with 
the  revolutions  of  one  wheel,  and  thus  multiply  the  power 
of  each  spinster.  "He  contrived  a  frame  in  one  part  of 
which  he  placed  eight  ravings  in  a  row,  and  in  another  part 
a  row  of  eight  spindles.  The  rovings,  when  extended  to  the 
spindles,  passed  between  two  horizontal  bars  of  wood,  forming 
a  clasp  which  opened  and  shut  somewhat  like  a  parallel  ruler. 
When  pressed  together  this  clasp  held  the  threads  fast ;  a 
certain  portion  of  roving  being  extended  from  the  spindles  to 
the  wooden  clasp,  the  clasp  was  closed,  and  was  then  drawn 
along  the  horizontal  frame  to  a  considerable  distance  from 
the  spindles,  by  which  the  threads  were  lengthened  out  and 
reduced  to  the  proper  tenuity;  this  was  done  with  the  spin- 
ner's  left  hand,  and  his  right  hand  at  the  same  time  turned 
a  wheel  which,  caused  the  spindles  to  revolve  rapidly,  and 
thus  the  roving  was  spun  into  yarn.  By  returning  the  clasp 
to  its  first  situation  and  letting  down  a  piercer  wire  the  yarn 
was  wound  upon  the,  spindle." 

The  powers  of  Hargreaves'  machine  soon  became  known 
among  his  ignorant  neighbors,  notwithstanding  his  strenu- 
ous efforts  to  keep  his  admirable  invention  a  secret,  and 
these  neighbors  naturally  enough  concluded  that  a  con- 
trivance, which  enabled  one  spinster  to  do  the  work  of 
eight,  would  throw  many  people  out  of  employment.  A 
mob  broke  into  his  house  and  destroyed  his  machine. 
Hargreaves  retired  in  disgust  to  Nottingham,  where  by 


108  PRINCIPLES   OF   POLITICAL  ECONOMY. 

means  of  the  friendly  assistance  of  one  other  person  he  was 
enabled  to  take  out  a  patent  for  his  invention,  which  he 
called  in  compliment  to  his  industrious  wife  the  "  Spin- 
ning-Jenny" This  invention  gave  a  new  impulse  to  the 
cotton  manufacture,  but  had  it  been  unaccompanied  by 
other  improvements,  no  purely  cotton  goods  could  have 
been  made  in  England ;  because  the  yarn  spun  by  the  new 
jenny,  like  that  previously  spun  by  hand,  was  not  fine 
enough  nor  hard  enough  to  be  used  as  warp,  and  linen  or 
woollen  threads  had  consequently  to  be  employed  for  that 
purpose. 

In  the  very  year,  however,  in  which  John  Hargreaves, 
the  poor  weaver,  migrated  to  Nottingham,  Richard  Ark- 
wright,  a  poor  barber's  assistant,  took  out  a  patent  for  his 
still  more  celebrated  machine  for  spinning  by  rollers.  In 
one  respect  Arkwright  was  much  worse  off  than  Har- 
greaves :  the  latter  had  a  helpmate  meet  for  him,  the  former 
had  a  wife  who  is  said  to  have  destroyed  the  models  her 
husband  had  made  and  to  have  opposed  him  in  every  step 
of  his  career.  But  Arkwright  was  not  deterred  from  his 
life  pursuit  by  the  poverty  of  his  circumstances  or  the 
scandalous  conduct  of  his  wife.  After  many  years  of 
intense  and  opposed  devotion  to  the  possible  application 
of  a  simple  principle  he  had  conceived  in  his  mind,  namely, 
that  of  spinning  by  means  of  rollers  revolving  at  varying 
rates  of  rapidity,  he  succeeded  in  contriving  and  patenting 
his  memorable  machine,  which,  more  than  any  other  one 
invention,  localized  and  concentrated  in  England  the 
gigantic  cotton-industry  of  the  world.  Arkwright's  idea 
and  achievement  was  to  pass  the  coarse  thread  drawn  out 
from  the  rovings  over  two  pairs  of  rollers  in  succession, 
the  first  of  which  revolving  slowly  fined  the  thread  down 
evenly  and  gradually,  and  then  this  thread  was  passed  over 
a  second  pair  of  rollers  turning  with  a  high  velocity  and 


MATERIAL   COMMODITIES.  109 

drawing  out  the  line  into  any  requisite  tenuity.  Thus  a 
cotton  thread  was  spun  capable  of  being  used  as  warp. 
Cotton  cloth  as  such  could  now  be  manufactured  in 
England. 

From  the  circumstance  that  the  mill,  at  which  Ark- 
wright's  machinery  was  first  erected,  was  driven  by  water 
power,  the  machine  received  the  inappropriate  name  of 
the  "  water-frame  "  ;  and  the  thread  spun  on  these  rollers 
was  commonly  called  the  "water-twist."  The  old  mode 
of  carding  the  cotton  by  hand  now  furnished  the  "  rovings  " 
too  slowly  to  meet  the  wants  of  the  new  spinning-jenny 
and  the  new  water-frame  ;  and  these  great  inventions  would 
consequently  have  proven  comparatively  useless,  had  not 
a  more  efficient  and  rapid  process  of  carding  the  cotton 
superseded  just  at  the  right  time  the  old  system  of  hand- 
carding.  Lewis  Paul  introduced  revolving  cylinders  for 
carding  the  raw  cotton  into  rovings  preparatory  to  spin- 
ning, in  partial  imitation  perhaps  of  Arkwright's  principle 
of  spinning  the  rovings  by  the  rotatory  motion  of  rollers. 
Paul's  machine  consisted  "  of  a  horizontal  cylinder,  covered 
in  its  whole  circumference  with  parallel  roivs  of  cards  with 
intervening  spaces,  and  turned  by  a  handle.  Under  the 
cylinder  was  a  concave  frame,  lined  internally  with  cards 
exactly  fitting  the  lower  half  of  the  cylinder,  so  that  when 
the  handle  was  turned,  the  cards  of  the  cylinder  and  of  the 
concave  frame  worked  against  each  other  and  carded  the  wool. 
The  car  dings  were  of  course  only  of  the  length  of  the  cylinder, 
but  an  ingenious  apparatus  was  attached  for  making  them 
into  a  perpetual  carding.  Each  length  was  placed  on  a  flat 
broad  riband,  which  was  extended  between  two  short  cylin- 
ders, and  which  wound  upon  one  cylinder  as  it  unwound 
from  the  other" 

While  the  foregoing  series  of  inventions  placed  an 
almost  unlimited  supply  of  cotton  yarn  at  the  disposal 


110  PRINCIPLES   OF   POLITICAL  ECONOMY. 

of  the  weaver,  the  machinery  as  yet  introduced  was  still 
incapable  of  providing  yarn  fit  for  the  finest  grades  of 
cotton  cloth.  The  "  water-frame  "  indeed  spun  abundant 
twist  for  warps,  but  it  could  not  furnish  the  finest  qual- 
ities of  yarn,  because  these  were  too  tenuous  to  bear  safely 
the  pull  of  the  rollers  while  they  wound  themselves  on  the 
bobbin.  Samuel  Crompton,  a  young  weaver  living  near 
Bolton,  possessed  the  ingenuity  needful  to  remove  this 
difficulty.  He  succeeded  in  combining  in  one  machine, 
which  from  its  nature  is  happily  called  the  "  mule,"  the 
several  excellences  of  Hargreaves'  spinning-jenny  and 
Arkwright's  water-frame.  Copying  after  the  latter,  the 
mule  has  a  system  of  rollers  to  reduce  the  roving ;  copy- 
ing after  the  former  it  has  spindles  without  bobbins  to 
give  the  twist ;  and  the  thread  is  stretched  and  spun  at 
the  same  time  by  the  spindles  after  the  rollers  have  ceased 
to  give  out  the  rove.  "The  distinguishing  feature  of  the 
mule  is  that  the  spindles,  instead  of  being  stationary,  as  in 
both  the  other  machines,  are  placed  on  a  movable  carriage 
which  is  wheeled  out  to  the  distance  of  fifty-four  or  fifty-six 
inches  from  the  roller  beam,  in  order  to  stretch  and  twist  the 
thread,  and  wheeled  in  again  to  wind  it  on  the  spindles.  In 
the  jenny,  the  clasp  which  held  the  rovings  was  drawn  back 
by  the  hand  from  the  spindles  ;  in  the  mule,  on  the  contrary, 
the  spindles  recede  from  the  clasp,  or  from  the  roller-beam 
which  acts  as  a  clasp.  The  rollers  of  the  mule  draw  out  the 
roving  much  less  than  those  of  the  water-frame,  and  they  act 
like  the  clasp  of  the  jenny  by  stopping  and  holding  fast  the 
rove,  after  a  certain  quantity  has  been  given  out,  whilst  the 
spindles  continue  to  recede  for  a  short  distance  farther,  so 
that  the  draught  of  the  thread  is  in  part  made  by  the  reced- 
ing of  the  spindles.  By  this  arrangement,  comprising  the 
advantages  both  of  the  roller  and  the  spindles,  the  thread  is 
stretched  now  gently  and  equably,  and  a  much  finer  quality 
of  yarn  can  therefore  be  produced." 


MATERIAL  COMMODITIES.  Ill 

The  ingenuity  of  Hargreaves,  Arkwright,  and  Cromp- 
ton  had  been  exercised  to  provide  the  weaver  with  yarn, 
and  had  now  indeed  provided  him  with  more  yarn  than  he 
could  use  ;  the  spinster  had  beaten  the  weaver,  just  as  the 
weaver  had  previously  beaten  the  spinster  ;  and  the  mak- 
ing of  cotton  cloth  seemed  likely  to  continue  sluggish, 
because  the  yarn  could  not  be  woven  any  faster  than  a 
skilled  workman  could  weave  it  with  Kay's  improved  fly- 
shuttle.  In  the  summer  of  1784,  a  Kentish  clergyman 
named  Edmund  Cartwright,  being  in  conversation  with 
some  Manchester  gentlemen,  one  of  whom  observed  that, 
"  as  soon  as  Arkwright's  patent  expired  so  many  mills 
would  be  erected  and  so  much  cotton  spun  that  hands 
would  never  be  found  to  weave  it,"  replied,  "  Arkwright 
must  then  set  his  wits  to  work  to  invent  a  weaving-mill." 
Notwithstanding  the  unanimous  opinion  expressed  by  the 
Manchester  gentlemen,  that  such  a  weaving-machine  was 
wholly  impracticable,  the  clergyman  himself  within  three 
years  had  invented  and  brought  into  successful  operation 
the  "power-loom"  Subsequent  inventors  improved  the 
idea  which  Cartwright  originated,  and  before  1834  there 
were  not  less  than  100,000  power-looms  at  work  in  Great 
Britain  alone.1 

Substantially  the  same  machinery  invented  for  carding 
and  spinning  and  weaving  cotton  was  very  shortly  and 
successfully  applied  to  the  carding  and  spinning  and 
weaving  of  wool,  because  the  wisdom  of  Nature  imparted 
to  them  both  the  same  sort  of  tenacity  of  fibre,  the  same 
capacity  in  that  fibre  to  be  spun  into  a  thread  of  indefinite 
length  by  means  of  the  little  loops  or  kinks  easily  inter- 
locking contiguous  fibres  into  a  single  thread,  which  two 
obvious  resemblances  gave  an  identical  name  to  the  animal 

1  Baines'  History  of  the  Cotton  Manufacture,  as  condensed  and  quoted 
in  Walpole's  History  of  England,  VoL  L 


112  PRINCIPLES   OF  POLITICAL   ECONOMY. 

and  vegetable  products  otherwise  so  different  from  each 
other. 

The  spirit  of  Invention,  one  of  the  chief  conditions  in 
the  production  of  material  commodities,  thus  simply  illus- 
trated along  the  line  of  a  single  manufacture,  may  serve 
us  for  a  sample  of  similar  improvements  taken  and  taking 
place  in  scores  upon  scores  of  other  lines  of  effort  and 
production.  The  principle  is  the  same  in  all  cases  past 
and  present  and  still  to  come,  namely  this,  to  throw  the 
strain  from  the  mind  and  muscles  of  men  upon  the  forces 
and  agencies  of  free  Nature,  with  which  the  world  around 
us  is  crowded  in  our  behalf,  and  which  are  waiting  to 
slave  in  the  service  of  mankind  without  rest  and  without 
fatigue,  —  without  money  and  without  price. 

(c)  Freedom.  By  far  the  most  important  of  all  the 
conditions,  under  which  the  production  of  material  com- 
modities goes  broadly  forward,  is  liberty  of  action  on  the 
part  of  the  individual ;  because,  wherever  such  liberty  is 
conceded,  association  and  invention  and  all  other  needful 
conditions  follow  right  along  by  laws  of  natural  sequence. 
By  liberty  of  individual  action  is  meant  the  practical  right 
of  every  man  to  employ  his  own  efforts  for  the  satisfaction 
of  his  own  wants  in  his  own  way,  whether  directly  or 
through  exchange.  Each  man's  right  of  individual  free- 
dom is  limited  of  course  by  every  other  man's  right  to 
equal  freedom,  which  the  first  man  is  not  at  liberty  to 
infringe ;  and  also,  in  certain  few  and  limited  respects,  by 
what  is  sometimes  called  the  "  general  good,"  the  judge  of 
the  application  of  which  must  be  the  government  under 
which  the  man  lives.  With  these  limitations,  which  are 
few  in  number  and  never  serious  in  degree  when  rightly 
applied,  and  which  limit  in  common  all  other  rights  what- 
soever, the  right  of  every  man  to  buy  and  sell  and  get 
gain  is  just  as  fully  a  right  as  .the  right  of  breathing.  It 


MATERIAL   COMMODITIES.  113 

stands  on  the  same  impregnable  ground.  It  is  a  natural 
and  self-evident  and  inalienable  right,  with  which  each 
man  has  been  endowed  by  his  Creator,  to  put  forth  efforts 
for  his  own  well-being  and  for  those  dependent  upon  him, 
either  directly  or  by  means  of  efforts  exchanged  with  other 
men  equally  free ;  and  he  is  a  slave  in  spirit  and  position, 
who  tamely  submits  to  have  his  own  rights  of  buying  and 
selling  curtailed,  or  to  stand  by  and  see  the  rights  of  his 
fellow-citizens  similarly  curtailed,  unless  such  act  of  inter- 
ference and  curtailment  on  the  part  of  his  Government  be 
justified  by  a  solid  proof  that  some  other  public  or  private 
rights,  which  are  at  least  as  well  based  as  his  own,  would 
be  endangered  by  the  exercise  of  his  own. 

In  what  cases  may  a  Government  properly  step  in  to  reg- 
ulate or  prohibit  the  buying  and  selling  of  its  citizens? 
Hundreds  of  inductions  extending  through  hundreds  of 
years  have  been  carefully  and  logically  conducted  in  order 
to  reach  a  just  and  comprehensive  answer  to  this  question ; 
and  in  all  probability  the  cases  have  been  inductively 
ascertained  for  all  time,  and  they  are  these :  such  buying 
and  selling  may  be  controlled  and  prohibited,  as  are  proven 
to  be  contrary  (1)  to  the  public  Morals,  (2)  to  the  public 
Health,  (3)  to  the  public  Revenue.  All  other  buying  and 
selling  may  be  safely  assumed  to  be  both  profitable  to  the 
parties  to  it,  and  also  useful  to  the  Commonwealth  in 
general ;  and  any  interference  with  it  by  public  authority 
is  a  high-handed  infringement  of  natural  rights,  a  blow 
aimed  at  the  life  and  source  of  property.  These  wrong- 
ful strokes  at  private  rights,  this  restriction  on  the  free- 
dom of  individuals  to  exchange  products  for  their  own 
welfare,  is  now  mostly  confined  in  civilized  countries  to 
the  region  of  Taxation.  Within  this  region  the  wrongs 
are  still  frightful.  Judge  Cooley,  in  his  "Principles  of 
Constitutional  Law,"  states  the  matter  as  follows :  "  Con? 


114  PKINCIPLES   OF  POLITICAL  ECONOMY. 

stitutionally  a  tax  can  have  no  other  basis  than  the  raising 
of  revenue  for  public  purposes  ;  and  whatever  governmental 
action  has  not  this  basis  is  tyrannical  and  unlawful.  A  tax 
on  imports,  therefore,  the  purpose  of  which  is  not  to  raise  a 
revenue,  but  to  discourage  and  indirectly  prohibit  some  par- 
ticular import  for  the  sake  of  some  home  manufacturer,  may 
well  be  questioned  as  being  merely  colorable,  and  therefore 
not  warranted  by  constitutional  principle" 

Formerly,  governments  interfered  almost  beyond  belief 
with  the  freedom  of  their  people  in  all  industrial  and  com- 
mercial action ;  dictating  what  should  and  what  should  not 
be  grown  and  manufactured,  what  should  and  what  should 
not  be  exported  and  imported ;  decreeing  by  proclamation 
or  enacting  by  statute,  the  number  of  apprentices  each 
artisan  might  employ,  and  the  years  during  which  these 
must  serve  as  such,  and  the  conditions  under  which  they 
might  then  work  as  journeymen ;  the  materials  to  be  used 
in  woven  fabrics,  and  even  the  widths  and  other  minor 
features  of  such  fabrics,  were  prescribed  in  the  foremost  of 
the  European  nations ;  in  the  reign  of  St.  Louis  of  France, 
a  "  Book  of  Trades  "  was  issued  under  royal  authority  and 
is  still  extant,  which  organizes  minutely  and  subjects  to 
cumbersome  rules  more  than  one  hundred  separate  indus- 
tries as  then  practised ;  England  was  the  country  of  the 
great  trading  "  Companies,"  and  of  all  of  these  the  same 
may  be  said  as  Adam  Smith  said  of  the  Turkey  Company 
formed  in  1579,  namely,  it  was  "a  strict  and  oppressive 
monopoly " ;  among  others  there  were  the  African  Com- 
pany established  in  1530,  the  Russia  Company  beginning 
its  operations  in  1553,  the  East  India  Company  chartered 
on  the  very  last  day  of  the  seventeenth  century  and  going 
out  of  existence  in  our  own  time,  and  the  Hudson's  Bay 
Company,  chartered  in  1670  and  so  having  the  sole  control 
in  trade  of  a  region  forty  times  larger  than  all  England; 


MATERIAL   COMMODITIES.  115 

while  the  colonial  system  prevailing  for  two  centuries  in 
all  the  countries  of  Western  Europe  regulated  the  com- 
merce and  controlled  the  manufactures  in  the  colonies 
with  a  single  eye  to  the  benefits  of  the  mother  country,  as 
those  were  conceived  of  under  the  wretched  Mercantile 
system. 

Happily,  since  governments  have  become  more  enlight- 
ened than  formerly,  they  are  perceiving  for  the  most  part 
that  they  have  not  the  least  right  to  interfere  in  those  ways 
or  in  any  ways  with  the  natural  right  of  their  people  to 
make  and  grow  freely  all  material  commodities,  and  to  buy 
and  sell  these  freely  in  the  best  markets  wherever  these 
markets  are  to  be  found;  and  they  are  also  perceiving, 
that  by  such  interference  incalculable  losses  of  property 
and  indefinite  retardations  of  progress  are  caused  to  their 
people,  as  well  as  weakness  to  themselves  as  governments 
through  a  more  difficult  gathering  of  taxes  and  a  harder 
maintenance  of  prestige  and  power. 

The  only  motive  to  a  mutual  exchange  of  services, 
whether  in  one  or  in  all  of  their  three  kinds,  that  is  to 
say,  to  a  free  production  of  commodities  and  services  and 
credits,  is  always  and  everywhere  the  mutual  benefit  of 
the  two  parties  exchanging.  After  all  the  processes  have 
been  gone  through  with  and  the  exchanges  are  consum- 
mated, all  the  parties  are  richer  than  before,  that  is,  they 
have  more  satisfactions,  otherwise  the  processes  and  ex- 
changes would  instantly  cease.  Therefore,  a  universally 
free  production  benefits  everybody,  and  harms  nobody. 
Moreover,  under  a  system  of  free  production,  every  man 
is  allowed  under  the  stimulus  of  self-interest  to  work  away 
at  those  obstacles  to  the  gratification  of  human  desires 
which  he  feels  himself  best  able  to  overcome,  to  follow  the 
bent  of  his  own  mind,  and  to  avail  himself  of  all  those 
free  helps  in  his  peculiar  work  which  Nature  offers  to 


116  PRINCIPLES   OF   POLITICAL  ECONOMY. 

him.  Under  these  circumstances,  obstacles  give  way  in  all 
directions ;  the  amount  of  material  products  produced  is 
vastly  augmented,  the  number  and  variety  and  excellence 
of  personal  services  proffered  are  indefinitely  increased, 
and  credits  compelling  the  Future  to  pay  tribute  to  pro- 
duction are  multiplied;  the  diversified  and  rapidly  increas- 
ing desires  of  all  persons  in  such  a  community  are  readily 
met  through  profitable  exchanges  ;  while  all  peculiar  facil- 
ities natural  and  acquired  are  taken  immediate  advantage 
of,  the  diversities  of  relative  advantage  in  production 
become  marked  in  all  directions,  and  a  new  day  of  indus- 
trial and  commercial  prosperity  is  ushered  in.  Because 
under  freedom  all  men  are  sure  to  dispose  of  their  indus- 
trial efforts  to  the  best  advantage,  they  have  the  strongest 
possible  motives  to  put  them  forth;  since  they  can  purchase 
with  them  what  they  will  and  when  they  will,  and  where 
they  will.  Thus  freedom  leads  to  extended  association, 
and  also  to  the  invention  of  machinery  and  all  labor-saving 
appliances. 

3.  We  are  now  in  position  to  understand  thoroughly 
the  ultimate  GROUNDS  of  the  production  of  material  com- 
modities. We  have  seen,  that  these  commodities  have 
been  multiplying  in  number  and  variety  and  excellence 
ever  since  the  beginnings  of  history,  that  they  are  every- 
where multiplying  now  at  a  rate  hitherto  unprecedented 
and  undreamed  of,  and  that  improved  and  improving 
methods  of  transportation  by  land  and  sea  are  now  carry- 
ing these  back  and  forth  to  the  ends  of  the  earth.  What 
is  the  principle,  under  which  these  things  have  been  done, 
are  now  being  done,  and  are  certain  to  be  done  in  the  time 
to  come? 

The  physical  and  moral  obstacles,  that  Nature  has 
interposed  to  the  gratification  of  the  multitudinous  and 
constantly  increasing  desires  of  men,  are  so  great  in  all 


MATERIAL  COMMODITIES.  117 

directions,  that  the  powers  of  the  individual  man  are 
utterly  unable  to  surmount  any  considerable  number  of 
them;  while  at  the  same  time,  the  physical  and  moral 
powers,  adapted  under  sufficient  motives  to  overcome 
these  obstacles,  are  very  diverse  in  the  different  individ- 
uals of  mankind.  Not  only  is  there  a  surprising  diversity 
in  original  gifts,  but  also  the  powers  acquired  by  gradual 
concentration  of  personal  effort  upon  one  set  of  obstacles 
become  exceedingly  diverse,  as  does  moreover  familiarity 
in  the  use  of  the  gratuitous  forces  of  nature  which  lend 
their  aid  towards  overcoming  these  particular  obstacles. 
As  the  result  of  one  or  two  or  all  of  these,  one  man 
naturally  comes  to  have  a  vast  advantage  over  others  in 
his  particular  branch  of  business,  whatever  that  may  be  ; 
each  of  these  others  by  precisely  the  same  means  comes 
to  have  a  legitimate  advantage  over  the  first  in  his  own 
branch  of  effort,  whatever  that  may  be ;  and  if,  as  always 
happens  practically,  the  first  has  desires  which  the  varied 
efforts  of  the  others  can  satisfy,  and  they  too  desires 
which  his  efforts  can  satisfy,  nothing  more  is  necessary  to 
profitable  exchanges  between  them  than  this  diversity  of 
relative  advantage  at  different  points. 

It  is  solely  because  a  given  effort  irksome  in  itself  put 
forth  for  another  person,  in  view  of  and  for  the  sake  of  a 
return-service  from  him,  realizes  more  of  satisfaction  to 
both  parties  than  when  put  forth  for  one's  self  directly, 
that  commercial  exchanges  ever  take  place  among  men. 
The  sole  ground  of  these,  the  principle  underlying  them 
everywhere,  is  DIVERSITY  OF  ADVANTAGE  BETWEEN  DIF- 
FERENT MEN  AND  BETWEEN  DIFFERENT  NATIONS  IN 

DIFFERENT  RESPECTS.  All  exchanges  whatsoever  depend 
on  diversity  of  relative  advantage  in  the  production  of 
commodities  or  services  or  credits  as  between  the  persons 
exchanging ;  and  this  diversity  of  relative  advantage  exists 


118  PRINCIPLES   OF  POLITICAL  ECONOMY. 

by  God's  appointment  primarily  among  individual  men  as 
such,  and  only  secondarily  on  the  ground  of  the  varied 
soil  and  climate  and  position  and  natural  gifts  of  different 
parts  of  the  earth.  Reserving  these  secondary  consid- 
erations, which  are  quite  secondary  in  importance  also,  to 
a  later  detailed  discussion,  it  is  very  clear  and  of  central 
consequence  in  our  science  that  a  diversity  of  relative 
advantage  in  different  things  displays  itself  as  between 
the  individuals  of  every  community  and  country  large  and 
small.  There  is  no  hamlet  in  any  land  in  which  one  man 
has  not  an  advantage  over  his  neighbors  in  the  making  of 
clothes,  another  in  the  making  and  setting  of  horse-shoes,  a 
third  in  the  building  of  houses,  a  fourth  in  the  curing  of 
diseases,  and  another  in  the  keeping  a  school ;  while  each 
of  those  neighbors  has  undoubtedly  some  advantage  or 
other  over  each  of  these  in  some  trade  or  means  of  livelihood. 
As  a  natural  result  of  this  diversity  any  two  of  these 
villagers  may  profitably  exchange  their  respective  efforts 
with  each  other,  provided  of  course  each  has  a  desire  for 
the  product  of  the  other,  to  the  manifest  lessening  of  the 
effort  of  each  relatively  to  the  satisfaction  of  each,  and 
the  more  so  as  the  relative  superiority  of  each  to  the  other 
in  his  own  trade  is  the  greater. 

This  point  will  repay  some  pains  in  minute  illustration. 
If  the  blacksmith  can  make  and  set  horse-shoes  only  a  trifle 
better  than  the  tailor  could  do  this  if  he  tried,  and  the  tailor 
can  make  coats  only  a  little  better  than  the  blacksmith 
could  make  one  if  he  chose,  there  will  be  but  a  slight 
benefit  to  each  in  their  changing  works  with  one  another. 
For  the  sake  of  definiteness,  let  us  say,  that  the  tailor's 
capacity  for  making  coats  is  6,  and  his  capacity  in  making 
and  setting  horse-shoes  is  5 ;  and  also  that  the  blacksmith's 
capacity  for  shoeing  horses  is  6,  and  his  ability  in  making 
coats  is  5.  Each  has  a  relative  superiority  to  the  other 


MATERIAL  COMMODITIES.  119 

of  1  in  his  own  trade ;  and  if  they  exchange  efforts,  as  they 
probably  would  under  these  circumstances,  there  is  only 
an  advantage  of  2  to  be  divided  between  them. 

Now  let  us  suppose  (what  might  easily  become  a  fact), 
that  the  tailor  by  exclusive  and  augmented  attention  to 
the  conditions  of  his  own  craft  carries  up  his  capacity  for 
making  coats  to  15,  the  blacksmith's  efficiency  in  both  the 
trades  remaining  the  same  as  before.  There  will  now  be 
an  increased  motive  to  both  the  artisans  for  exchanging 
products  with  one  another,  and  a  larger  gain  to  each  than 
before  as  the  result  of  such  exchange.  The  diversity  of 
relative  advantage  as  between  the  two  has  now  gone  up 
from  2  to  11.  The  tailor  can  now  make  a  coat  much  better 
and  quicker  than  before ;  and  though  the  blacksmith  owing 
to  his  inertness  can  neither  make  nor  set  horse-shoes  any 
better  than  before,  still  less  make  coats  any  better,  he  will 
after  all  by  still  trading  with  the  tailor  reap  a  part  of  the 
benefit  of  the  latter's  increased  efficiency  in  making  coats ; 
the  new  coat  is  at  once  better  and  costs  less  than  the 
previous  one ;  the  tailor  is  still  less  inclined  than  before  to 
leave  his  new  and  greater  advantage  over  the  blacksmith 
to  set  himself  to  shoeing  his  own  horse ;  even  on  the  old 
terms  the  blacksmith  can  do  that  1  better  than  he  himself 
can,  and  rather  than  forego  the  trade  he  will  naturally 
offer  the  blacksmith  somewhat  better  terms  than  before, 
or  in  other  words  will  feel  impelled  to  share  with  the 
blacksmith  a  part  of  the  proceeds  and  rewards  of  his  own 
now  superior  skill  and  diligence.  The  trade  began  on  the 
sole  basis  of  a  relative  diversity  of  advantage  as  between  the 
tAvo  mechanics,  each  in  his  own  craft ;  this  relative  diversity, 
without  which  no  exchange  ever  takes  place  between  any 
two  persons,  has  now  gone  up  as  between  these  two  from 
2  units  of  advantage  to  11  units  of  advantage ;  how  will 
these  11  units  be  divided  in  this  case  ?  Nobody  can  tell 


120  PRINCIPLES   OF  POLITICAL  ECONOMY. 

exactly  how  they  will  be  divided.  Two  things  about  it, 
however,  are  certain  at  least  in  their  tendencies  and 
potencies.  The  blacksmith  is  sure  to  get  some  part  of  the 
extra  fruit  of  his  neighbor's  new  push  and  spirit,  while  the 
tailor  is  sure  to  get  as  his  own  reward  by  much  the  larger 
part  of  the  whole  blessed  11. 

We  must  by  no  means  omit  to  notice  the  logical  inference 
from  this  instance,  nor  fail  to  make  the  proper  inductive 
generalization  from  a  sufficient  number  of  similar  instances. 
It  is  this :  no  man  can  make  any  essential  improvement  in 
any  of  the  methods  of  producing  material  commodities, 
without  at  the  same  time  benefiting  other  people  as  well 
as  himself.  Under  natural  law,  which  is  no  respecter  of 
persons,  he  can  by  no  possibility  selfishly  take  to  himself 
the  entire  fruits  of  his  own  growing  skill  and  vigor.  The 
only  way  in  which  he  can  gather  in  at  all  the  fruits  of 
these  is  to  sell  their  proceeds  in  the  open  market.  To 
broaden  his  own  market  for  now  better  and  more  abundant 
goods  he  must  offer  them  to  everybody  on  somewhat  better 
terms  than  formerly  —  and  the  better  the  terms  the  broader 
the  market — and  he  can  well  afford  to  do  this,  because  the 
goods  now  cost  him  less  of  irksome  human  effort.  Every 
improvement  in  the  production  of  commodities  is  precisely 
of  that  complexion.  The  issue  of  every  invention,  of  every 
improved  process  of  every  kind,  is,  so  far  forth,  a  cheaper 
product.  And  this  public  gain  follows,  must  follow,  indi- 
vidual enterprise  at  single  points,  even  when  the  great 
mass  of  exchangers  remain  at  the  old  stage  of  sluggish- 
ness. Whatever  increases  at  one  point  even,  and  a  fortiori 
at  two  points,  the  diversity  of  relative  advantage  as  between 
any  two  exchangers,  is  of  benefit  to  them  both,  and  the 
greater  this  relative  diversity  becomes  the  greater  the 
benefit  to  both. 

Now  let  us  see  how  the  matter  stands,  when  tailor  and 


MATERIAL   COMMODITIES.  121 

blacksmith  at  the  same  time  feel  and  obey  the  impulses 
to  a  more  skilled  and  vigorous  artisan  life.  Suppose  the 
blacksmith  too  carries  up  his  efficiency  in  his  own  trade  to 
15,  just  as  the  tailor  has  done,  the  potency  of  each  in  the 
trick  of  the  other  remaining  as  before  at  5 ;  under  these 
circumstances  when  the  two  come  to  trade  with  each  other, 
each  has  a  relative  superiority  over  the  other  of  10,  and 
there  is  an  advantage  of  20  points  to  be  divided  between 
the  two ;  the  trade  is  now  ten  times  more  profitable  to  each 
than  it  was  at  the  outset,  when  there  was  only  an  aggre- 
gate of  2  units  for  the  division  between  two  parties;  and 
accordingly  the  motive  to  an  exchange  and  the  gain  of  an 
exchange  as  between  tailor  and  blacksmith  are  ten  times 
greater  than  they  were  before.  Therefore  we  lay  down  the 
principle,  as  inductively  ascertained  and  as  universally 
applicable  to  all  exchanges,  that  the  greater  the  relative 
superiority  at  different  points  as  between  the  parties 
exchanging,  the  more  beneficial  and  profitable  do  the 
exchanges  become  to  all  the  participators  in  them.  If  this 
principle  be  just,  and  we  may  well  flatter  ourselves  that  it 
will  be  found  to  be  just,  it  follows,  that  every  man  who 
has  anything  to  buy  or  sell,  is  directly  interested  in  the 
highest  success  of  his  fellow-exchangers,  that  every  trade 
finds  its  own  advantage  in  the  success  of  all  other  trades, 
and  that  all  discoveries  and  inventions  by  which  Nature 
is  made  to  pay  tribute  to  art  is,  restrictions  apart,  so  much 
clear  gain  to  the  world  at  large.  In  the  light  of  sound 
and  broad  principles,  what  David  Hume  called  the  "  Jeal- 
ousy of  Trade  "  is  simply  silly. 

The  mainspring  that  impels  all  buyers  and  sellers  to 
quicken  their  movements  and  to  improve  their  methods 
and  thus  and  otherwise  to  cheapen  their  costs  of  produc- 
tion, is  the  natural  press  of  competition.  Somebody  else  is 
offering  this  product,  or  will  offer  it,  for  less  than  we  are 


122  PRINCIPLES   OF   POLITICAL   ECONOMY. 

now  selling  it  for,  and  we  must  contrive  some  way  by  short- 
ened times  or  cheaper  processes  or  a  quicker  zeal  not  to  be 
beaten  in  this  market-race,  is  the  silent  argument  ever 
making  itself  felt  on  the  mind  and  hand  of  the  producer. 
Such  natural  action  always  increases  the  general  diversity 
of  relative  advantage  as  among  buyers  and  sellers. 

But,  on  the  other  hand,  whatever  lessens  or  threatens  to 
lessen  this  natural  and  most  beneficial  stress  of  competition 
among  producers  of  similar  commodities  at  home  or  abroad, 
necessarily  lessens  the  motive  on  the  part  of  these  pro- 
ducers to  excellence  of  quality  in  their  goods  and  to  cheap- 
ness of  their  cost,  because  it  makes  less  the  diversity  of 
relative  advantage  as  between  these  producers  and  those 
producers  of  other  commodities  against  which  the  first 
exchange.  The  units  of  advantage  that  would  otherwise 
be  divided  between  the  exchangers  are  diminished;  the 
motives  to  trade  and  the  rewards  of  trade  are  thus  lessened 
to  each  pair  of  parties  subject  to  such  diminution  of  com- 
petition, and  consequently  to  the  community,  or  nation,  or 
family  of  nations,  as  a  whole ;  and  accordingly  this  is  the 
precise  place  for  us  to  look  into  the  nature  and  effects  of 
Monopoly,  so  called,  and  to  perceive  once  for  all,  that 
Monopoly  is  the  enemy  of  mankind. 

Monopoly  is  a  word  derived  from  two  Greek  words, 
which  mean  when  combined  selling  alone,  that  is,  the  privi- 
lege of  selling  one's  commodity  free  from  the  competition 
to  which  it  is  naturally  subject  by  other  sellers  than  the 
privileged  one.  Monopoly  is  thus  artificial  restraint  im- 
posed on  some  buyers  and  sellers  for  the  supposed  benefit 
of  other  buyers  and  sellers.  It  is  wholly  unnatural.  It  is 
usually  enjoyed  under  the  forms  of  law.  Its  beneficiaries 
commonly  cajole  or  extort  from  Government  by  hook  or 
by  crook  the  exclusive  privilege  of  selling  certain  com- 
modities in  a  designated  market.  Their  motive  is  purely 


MATERIAL  COMMODITIES.  123 

selfish :  it  is  simply  and  solely  to  get  for  themselves  a 
return-service  artificially  enhanced  by  selling  commodities 
in  a  legally  restricted  market.  The  effect  in  the  first  in- 
stance usually  corresponds  to  their  expectations.  The 
public  are  at  their  mercy  so  far  as  the  designated  com- 
modities are  concerned. 

The  general  story  of  monopolies  is  a  dreary  stretch  of 
record  of  human  greed  and  wrong  on  the  one  hand,  and 
of  wide-spread  poverty  and  suffering  and  slowly-gathering 
resistance  on  the  other.  We  will  look  at  only  two  in- 
stances at  present  in  the  long  account,  premising  that,  the 
motives  of  greed  and  grab  are  the  same  in  all  instances, 
and  the  results  of  wrong  and  hate  on  the  part  of  those 
oppressed  by  them  are  the  same  also  in  all  instances. 
Let  Macaulay  (I,  40)  tell  us  something  of  the  first  in- 
stance selected  for  illustration.  "  But  at  length  the  Queen 
took  upon  herself  to  grant  patents  of  monopoly  by  scores. 
There  was  scarcely  a  family  in  the  realm  which  did  not  feel 
itself  aggrieved  by  the  oppression  and  extortion  which  this 
abuse  naturally  caused.  Iron,  oil,  vinegar,  coal,  saltpetre, 
lead,  starch,  yarn,  skins,  leather,  glass,  could  be  bought  only  at 
exorbitant  prices.  The  House  of  Commons  met  in  an  angry 
mood.  It  was  in  vain  that  a  courtly  minority  blamed  the 
Speaker  for  suffering  the  acts  of  the  Queen's  Highness  to  be 
called  in  question.  The  language  of  the  discontented  party 
was  high  and  menacing,  and  was  echoed  by  the  voice  of  the 
ivhole  nation.  The  coach  of  the  chief  Minister  of  the  Crown 
was  surrounded  by  an  indignant  populace,  who  cursed  the 
monopolies,  and  exclaimed  that  the  prerogative  should  not  be 
suffered  to  touch  the  old  liberties  of  England.  There  seemed 
for  a  moment  to  be  some  danger  that  the  long  and  glorious 
reign  of  Elisabeth  would  have  a  shameful  and  disastrous 
end.  She,  however,  ivith  admirable  judgment  and  temper, 
declined  the  contest,  put  herself  at  the  head  of  the  reforming 


124  PRINCIPLES   OF   POLITICAL   ECONOMY. 

party,  redressed  the  grievance,  thanked  the  Commons  in 
touching  and  dignified  language  for  their  tender  care  of  the 
general  weal,  brought  back  to  herself  the  hearts  of  the  people, 
and  left  to  her  successors  a  memorable  example  of  the  way  in 
which  it  behooves  a  ruler  to  deal  with  public  movements  which 
he  has  not  the  means  of  resisting" 

Perhaps  some  one  of  my  readers  may  suggest,  that 
these  are  the  words  of  a  Whig-Liberal,  and  may  thus 
exaggerate  the  cause  of  the  people  as  against  the  monop- 
olists. Well,  then,  let  us  hear  the  words  of  a  high  Tory- 
Loyalist,  the  historian  Hume  (IV,  335,  350),  in  relation 
to  the  same  monopolies.  "  The  active  reign  of  Elizabeth 
had  enabled  many  persons  to  distinguish  themselves  in  civil 
and  military  employments  ;  and  the  Queen,  who  was  not  able 
from  her  revenue  to  give  them  any  rewards  proportioned  to 
their  services,  had  made  use  of  an  expedient  which  had  been 
employed  by  her  predecessors,  but  which  had  never  been  car- 
ried to  such  an  extreme  as  under  her  administration.  She 
granted  her  servants  and  courtiers  patents  for  monopolies ; 
and  those  patents  they  sold  to  others,  who  were  thereby  en- 
abled to  raise  commodities  to  what  price  they  pleased,  and 
who  put  invincible  restraints  upon  all  commerce,  industry, 
and  emulation  in  the  arts.  It  is  astonishing  to  consider  the 
number  and  the  importance  of  those  commodities  which  were 
thus  assigned  over  to  patentees.  Currants,  salt,  iron,  pow- 
der, cards,  calf-skins,  felts,  pouldavies,  ox-skin-bones,  train 
oil,  lists  of  cloth,  potashes,  anise-seeds,  vinegar,  seacoals, 
steel,  aquavitce,  brushes,  pots,  bottles,  saltpetre,  lead,  acci- 
dences,  oil,  calamine  stone,  oil  of  blubber,  glasses,  paper, 
starch,  tin,  sulphur,  new  drapery,  dried  pilchards,  trans- 
portation of  iron  ordnance,  of  beer,  of  horn,  of  leather,  im- 
portation of  Spanish  wool,  of  Irish  yarn ;  these  are  but  a 
part  of  the  commodities  which  had  been  appropriated  to 
These  monopolists  were  so  exorbitant  in  their 


MATERIAL   COMMODITIES.  125 

demands,  that  in  some  places  they  raised  the  price  of  salt 
from  sixteen  pence  a  bushel  to  fourteen  or  fifteen  shillings. 
Such  high  profits  naturally  begat  intruders  upon  their  com- 
merce; and  in  order  to  secure  themselves  against  encroach- 
ments, the  patentees  were  armed  with  high  and  arbitrary 
powers  from  the  Council,  by  which  they  were  enabled  to  op- 
press the  people  at  pleasure,  and  to  exact  money  from  such 
as  they  thought  proper  to  accuse  of  interfering  with  their 
patent.  The  patentees  of  saltpetre,  having  the  power  of 
entering  into  every  house,  and  of  committing  what  havoc  they 
pleased  in  stables,  cellars,  or  wherever  they  expected  salt- 
petre might  be  gathered,  commonly  exported  money  from 
those  who  desired  to  free  themselves  from  this  damage  or 
trouble.  And  while  all  domestic  intercourse  was  restrained, 
lest  any  scope  should  remain  for  industry,  almost  every 
species  of  foreign  commerce  was  confined  to  exclusive  Com- 
panies, who  bought  and  sold  at  any  price  that  they  themselves 
thought  proper  to  offer  or  exact." 

"  The  Government  of  England  during  that  age,  however 
different  in  other  particulars,  bore  in  this  respect  some  re- 
semblance to  that  of  Turkey  at  present:  the  Sovereign  pos- 
sessed every  power,  except  that  of  imposing  taxes ;  and  in 
both  countries,  this  limitation,  unsupported  by  other  priv- 
ileges, appears  rather  prejudicial  to  the  people.  In  Turkey, 
it  obliges  the  Sultan  to  permit  the  extortion  of  the  pashas  and 
governors  of  provinces,  from  whom  he  afterwards  squeezes 
presents  and  takes  forfeitures :  in  England,  it  engaged 
the  Queen  to  erect  monopolies,  and  grant  patents  for  exclu- 
sive trade  ;  an  invention  so  pernicious,  that  had  she  gone  on 
during  a  tract  of  years  at  her  own  rate,  England,  the  seat 
of  riches,  and  arts,  and  commerce,  would  have  contained  at 
present  as  little  industry  as  Morocco  or  the  coast  of 
Barbary" 

But,  some  one  will  say,  Hume  and  Macaulay  are  histo- 


126  PRINCIPLES   OF   POLITICAL   ECONOMY. 

rians,  writing  long  after  these  events  took  place,  and  may 
likely  have  been  too  favorable  in  their  judgment  to  free- 
dom of  trade  domestic  and  foreign.  It  is  indeed  true, 
that  both  of  them  were  firmly  convinced  that  freedom  of 
trade  is  an  inalienable  right  as  well  as  an  unspeakable 
blessing  to  all  men  everywhere.  So,  then,  let  us  go  back 
to  contemporaries.  Let  us  hear  the  eye  and  ear  witnesses 
of  the  grievances  complained  of  in  1601.  Robert  Cecil 
was  then  prime  minister  of  Queen  Elizabeth.  He  and  his 
father  had  had  more  to  do  in  granting  the  monopolies  than 
any  other  persons  in  the  realm  except  the  Queen.  Said 
he  from  his  place  in  the  Commons  on  the  25th  of  Novem- 
ber: "/  say,  therefore,  there  shall  be  a  proclamation  gen- 
eral throughout  the  realm,  to  notify  Her  Majesty's  resolution 
in  this  behalf.  And  because  you  may  eat  your  meat  more 
savory  than  you  have  done,  every  man  shall  have  salt  as 
good  and  cheap  as  he  can  buy  it  or  make,  freely  without 
danger  of  that  patent  which  shall  be  presently  revoked.  The 
same  benefit  shall  they  have  which  have  cold  stomachs,  both 
for  aqua  vitce  and  aqua  composita  and  the  like.  And  they 
that  have  weak  stomachs,  for  their  satisfaction,  shall  have 
vinegar  and  alegar,  and  the  like,  set  at  liberty.  Train  oil 
shall  go  the  same  way  ;  oil  of  blubber  shall  march  in  equal 
rank  ;  brushes  and  bottles  endure  the  like  judgment.  Those 
that  desire  to  go  sprucely  in  their  ruffs,  may  at  less  charge 
than  accustomed  obtain  their  wish  ;  for  the  patent  for  starch, 
which  hath  so  much  been  prosecuted,  shall  now  be  repealed. 
The  patents  for  calf-skins  and  felts,  for  leather,  for  cards, 
for  glass,  shall  also  be  suspended,  and  left  to  the  law" 

Five  days  later  one  hundred  and  forty  members  of  the 
House  were  formally  received  by  Elizabeth  in  person,  the 
Speaker  having  been  instructed  to  convey  their  thanks  to 
her  majesty ;  and,  after  the  Speaker's  address,  he  with  the 
rest  knelt  down,  and  the  Queen  gave  her  answer  as  fol 


MATERIAL   COMMODITIES.  127 

lows :  "  Mr.  Speaker,  you  give  me  thanks,  but  I  doubt  me,  1 
have  more  cause  to  thank  you  all,  than  you  me :  for  had  I 
not  received  a  knowledge  from  you,  I  might  have  fallen  into 
the  lap  of  an  error,  only  for  lack  of  true  information.  Since 
I  was  queen,  yet  never  did  I  put  my  pen  to  any  grant,  but 
that  upon  pretext  and  semblance  made  unto  me  that  it  was 
both  good  and  beneficial  to  the  subjects  in  general,  though  a 
private  profit  to  some  of  my  ancient  servants  who  had  de- 
served ivell;  but  the  contrary  being  found  by  experience,  I 
am  exceeding  beholding  to  such  subjects  as  would  move  the 
same  at  first.  I  have  ever  used  to  set  the  last  judgment-day 
before  mine  eyes,  and  so  to  rule  as  I  shall  be  judged  to 
answer  before  a  higher  judge.  To  whose  judgment-seat  1 
do  appeal,  that  never  thought  was  cherished  in  my  heart  that 
tended  not  to  my  people's  good.  And  now  if  my  kingly 
bounty  hath  been  abused,  and  my  grants  turned  to  the  hurt 
of  my  people,  contrary  to  my  will  and  meaning ;  or  if  any 
in  authority  under  me  have  neglected  or  prevented  what  I 
have  committed  to  them,  I  hope  Grod  will  not  lay  their  culps 
and  offences  to  my  charge.  Though  you  have  had,  and  may 
have,  many  princes  more  mighty  and  wise,  sitting  in  this 
seat,  yet  you  never  had,  or  shall  have,  any  that  will  be  more 
careful  and  loving" 1 

These  were  the  last  words  of  Elizabeth  to  the  Commons 
of  England.  She  died  in  a  little  more  than  a  year.  In  a 
little  less  than  a  year  before  the  death  of  her  successor,  the 
famous  Act  of  Parliament  of  1624  declares,  that  all  mo- 
nopolies, grants,  letters  patent  for  the  sole  buying,  selling, 
and  making  of  goods  and  manufactures,  shall  be  thereafter 
wholly  null  and  void.  Though  this  Act,  and  many  others, 
was  violated  more  or  less  in  the  next  reign,  it  effectually 
secured  in  the  long  run  the  freedom  of  industry  in  Eng- 

1  Charles  Knight's  History  of  England,  III.  292  et  seq. 


128  PRINCIPLES   OF  POLITICAL  ECONOMY. 

land ;  and  in  the  opinion  of  excellent  authorities,  has  done 
more  to  excite  the  spirit  of  invention  and  industiy,  and 
to  accelerate  the  progress  of  commerce  in  that  country, 
than  any  other  law  on  the  statute  book. 

Our  second  instance  of  Monopolies  shall  be  drawn  from 
the  state  of  things  iii  the  United  States  in  this  year  of 
Grace,  1890.  The  monopolies  of  to-day  are  secured  by 
means  of  an  instrument  called  a  Tariff,  which,  later  on  in 
these  pages,  will  be  fully  discussed  in  its  history,  inmost 
nature,  and  invariable  effects.  Here  it  will  suffice  to  say, 
that  a  tariff  is  nothing  in  the  world  but  a  combination  of 
Taxes,  which  taxes  the  people  of  the  country,  on  which 
the  tariff  is  imposed,  are  obliged  to  pay  in  one  form  or 
another.  The  only  word  ever  uttered  by  a  tariff,  the  only 
word  a  tariff  from  its  own  nature  can  utter,  is,  Thou  shalt 
pay!  The  ostensible  reason  for  levying  these  taxes  is 
the  constitutional  one  of  getting  money  into  the  national 
Treasury,  —  "  to  pay  the  debts  and  provide  for  the  common 
defence  and  general  welfare  of  the  United  States  ";  but  the 
real  purpose  of  laying  these  tariff-taxes  at  present  is  only 
secondarily  and  remotely  the  ostensible  and  constitutional 
one ;  because,  on  the  authority  of  Professor  Taussig  of 
Harvard  University,  there  is  not  a  single  one  of  over  4000 
items  of  taxes  in  this  tariff,  that  is  designed  primarily  to 
get  money  into  the  treasury  from  the  pockets  of  the  peo- 
ple, but  every  one  of  them  is  designed  more  or  less  and 
more  rattier  than  less  to  raise  the  price  of  domestic  goods 
to  our  own  people  artificially  by  keeping  out  of  the 
country  by  means  of  these  taxes  on  them  the  foreign 
goods,  which  would  otherwise  come  into  a  profit.  In 
other  words,  there  is  no  purely  revenue-tax  in  our  im- 
mense tariff  at  present,  but  every  item  in  the  enormous 
list  is  a  so-called  and  mis-called  "protective  "-tax. 

By  this  shutting  off  from  domestic  goods   the   natural 


MATERIAL   COMMODITIES.  129 

competition  of  corresponding  foreign  goods  by  means  of 
such  tariff-taxes,  a  monopoly  is  created  at  the  instance  and 
for  the  sole  benefit  of  certain  classes  of  privileged  home- 
producers.  They  can  sell  alone  (monopoly)  just  so  far  as 
other  sellers  are  kept  out  by  these  heavy  taxes.  The  goal 
of  all  their  striving  is  to  get  an  artificially-enhanced  price 
for  their  own  products  at  the  cost  of  their  countrymen 
by  means  of  a  market  restricted  to  themselves  through 
obstacles  excluding  foreign  sellers.  The  end  proposed  by 
these  shrewd  manipulators  is  realized  in  fact.  Domestic 
prices  <r  re  lifted  on  so-called  "protected"  goods.  This  is 
the  first  effect  of  the  monopoly.  It  has  often  been  alleged, 
and  with  great  vehemence  by  the  late  Horace  Greely,  that 
competition  among  the  domestic  producers  of  such  wares 
will  lower  their  price  again  to  the  natural  point ;  but  if 
this  is  so,  what  motive  have  the  individual  producers  to 
work  so  assiduously  in  elections  and  lobbyings  to  get  on 
and  keep  on  these  tariff-taxes?  Again,  Mr.  Greely,  and 
all  others  of  like  association,  forgets  the  admirable  gener- 
alization of  Robert  Stephenson,  —  "  Where  combination  is 
possible,  competition  is  impossible."  Combination  among 
producers  to  keep  up  prices  is  always  possible  in  a  market 
restricted  by  law.  This  has  been  proven  on  a  large  scale 
in  the  United  States  during  each  of  the  past  thirty  years : 
combinations  among  coal  operators  to  keep  up  the  prices 
of  "protected"  coal  by  restricting  the  annual  output  of 
their  collieries ;  combinations  among  carpet  and  other 
woollen  manufacturers  to  maintain  high  prices  of  their 
fabrics  by  restricting  their  workmen  to  certain  hours  per 
day  or  to  certain  months  per  year ;  have  been  among  the 
commonest  of  industrial  events  in  all  this  interval.  With- 
in a  very  few  years  past  there  has  come  into  almost  uni- 
versal vogue  among  these  monopolists  a  new  kind  of  com- 
bination called  "  Trusts,"  —  again  abusing  a  good  word  by 


130  PRINCIPLES   OF   POLITICAL  ECONOMY. 

making  it  cover  an  abominable  purpose,  —  which  are  prob- 
ably illegal  at  Common  Law,  which  only  become  possible 
under  monstrously  unjust  tariff  laws,  and  which  work 
wide-spread  wrong  among  the  masses  of  the  people. 

A  second  effect  of  this  monopoly  (as  of  all  monopolies) 
is  to  worsen  the  quality  of  the  goods  sold  in  an  artificially 
restricted  market.  The  historian  Gibbon  noticed  this  fact 
more  than  a  century  ago,  and  said :  "  The  spirit  of  monop- 
olists is  narrow,  lazy  and  oppressive.  Their  work  is  more 
costly  and  less  productive  than  that  of  independent  artists; 
and  the  new  improvements  so  eagerly  grasped  by  the  compe- 
tition of  freedom,  are  admitted  by  them  with  slow  and  sullen 
reluctance"  Alfred  Lapoint,  United  States  consul  in 
Peru,  warned  the  State  Department  at  Washington  in 
1883  of  this  poor  quality  of  our  manufactures,  which  were 
then  trying  to  find  a  South  American  market.  He  wrote : 
"  It  is  my  duty  to  indicate  that  great  carelessness  prevails 
with  our  manufacturers  ;  for  instance,  I  was  called  upon  to 
purchase  in  the  United  States  a  steam  pump  and  boiler, 
which  I  ordered  from  one  of  the  most  famed  manufacturers, 
and  ivhen  it  arrived,  not  alone  was  the  boiler  inadequate  for 
the  pump,  but  actually  after  two  months'  work  the  upper  tube 
sheet  split  in  three  parts,  a  proof  of  its  bad  quality  and  con- 
struction" As  men  are,  a  natural  competition  among 
buyers  and  sellers  is  just  as  needful  to  keep  up  the  quality 
of  goods  as  to  keep  down  their  price.  Good  quality 
always  costs  more  of  effort  and  skill  and  capital  than  bad 
quality:  why  should  producers  continue  to  furnish  good 
quality  to  a  market  from  which  a  free  competition  in  good 
qualities  is  excluded  by  law  ?  Every  tendency  of  human 
nature,  as  well  as  every  relevant  fact  in  history,  attests, 
that  poor  wares  at  high  rates  invariably  attends  upon  tariff- 
monopolies.  Shoddy  takes  the  place  of  wool.  Cheaper 
crowds  out  better  material.  Skilled  workmanship  is  dis.- 


MATERIAL  COMMODITIES.  131 

placed  by  unskilled.  Processes  of  manufacture  are  has- 
tened in  time,  and  left  incomplete  to  the  damage  of  the 
goods  in  order  to  save  capital.  Monopoly  is  always  and 
everywhere  the  foe  of  excellence. 

A  third  effect  of  tariff-monopoly  is  to  prevent  the  sale 
abroad  of  domestic  goods  to  the  same  extent  and  amount 
as  foreign  wares  are  kept  out  by  these  monopoly-taxes. 
This  vital  and  fundamental  result  is  almost  always  over- 
looked. If  a  man  or  a  nation  refuse  to  buy  of  a  proffered 
customer,  they  cannot  by  any  possibility  sell  to  him; 
because  buying  and  selling  are  reciprocal  and  synchronous ; 
because  it  takes  two  to  make  a  bargain ;  because  material 
commodities,  for  the  most  part,  ultimately,  exchange 
against  each  other ;  and  because  the  only  motive  a  for- 
eigner ever  has  to  bring  his  goods  hither,  is  to  take  in 
exchange  for  them  our  domestic  goods  at  a  profit,  and 
carry  these  hence.  To  forbid  entrance  to  foreign  goods  is 
to  forbid  exit  to  domestic  goods.  Monopoly-tariff-taxes, 
therefore,  so  far  forth,  destroy  the  market  for  home  prod- 
ucts, without  creating  or  tending  to  create,  any  other  mar- 
ket for  them.  Such  taxes,  accordingly,  cause  a  dead  loss 
all  around,  —  to  the  foreign  producer  who  wants  to  buy 
our  products  with  his  own,  to  the  home  producer  who 
wants  to  sell  his  own  products  against  those,  and  even  to 
the  government  also  as  a  tax-collector,  which  can  get  no 
revenue  on  foreign  goods  excluded  by  monopoly-taxes. 

There  is  a  final  and  deeper  point  of  view,  from  which 
all  such  monopolies  are  wholly  condemnable.  They  lessen 
of  necessity,  — from  their  own  nature  and  inexorable  opera- 

tion,  —  THE     DIVERSITY    OF     RELATIVE     ADVANTAGE     AS 

BETWEEN  EXCHANGERS,  on  which  diversity,  as  we  have 
now  seen,  the  whole  fact  and  gain  of  exchanges  depend. 
Taxes  on  raw  materials,  for  example,  whether  actually  paid 
on  them  or  used  to  enhance  the  price  of  other  correspond- 


132  PK1NCIPLES    OF    POLITICAL   ECONOMY. 

ing  materials  as  in  the  tariff-taxes,  increase  the  costs  of  all 
products  into  which  such  taxed  materials  enter,  and  so 
restrict  the  market  of  the  home-producer  by  lessening  his 
relative  advantage  as  compared  with  the  relative  advan- 
tage of  the  foreigner  over  him.  He  cannot  sell  so  well, 
perhaps  cannot  sell  at  all,  his  cost-enhanced  products. 
Monopoly-taxes  on  industrial  processes  of  any  kind,  on  the 
means  of  transportation,  have  similar  effects  on  the  cost  of 
products ;  and  of  course,  similar  effects  in  lessening  Diver- 
sity, in  restricting  markets,  and  in  destroying  the  life  of 
Trade. 

Before  quitting  this  subject,  it  may  be  well  for  us  briefly 
to  classify  Monopolies. 

(a)  Patent  Rights.  In  the  great  parliamentary  Statute 
of  21  James  I,  which  declared  the  exclusive  privileges  to 
use  any  and  to  sell  any  merchandise  to  be  contrary  to 
the  ancient  and  fundamental  laws  of  the  realm,  and  all 
grants  and  dispensations  for  such  monopolies  to  be  of  none 
effect,  two  exceptions  had  been  made ;  the  first,  in  favor  of 
Patents  for  fourteen  years  to  the  true  and  first  inventors 
of  new  manufactures  within  the  realm ;  and  the  sec- 
ond, in  favor  of  the  grants  by  Act  of  Parliament  to  any 
Company  for  the  enlargement  of  foreign  Trade,  of  which 
the  East  India  Company  chartered  on  the  last  day  of  the 
last  year  of  the  sixteenth  century  became  the  most  famous 
and  the  longest-lived.  Open  letters  or  letters  patent,  as 
they  were  called,  giving  to  inventors  exclusive  authority  to 
vend  for  a  limited  time  any  chattel  or  article  of  commerce, 
of  which  a  model  could  be  made  showing  the  point  and 
application  of  what  was  claimed  to  be  new;  and  Copy- 
rights, which  grant  an  exclusive  property  also  for  a  lim- 
ited time  to  authors  and  discoverers  of  something  new  and 
useful,  of  which  a  model  cannot  be  made,  or,  as  it  is 
phrased  in  the  Constitution  of  the  United  States,  "the 


MATERIAL   COMMODITIES.  133 

exclusive  right  to  their  respective  writings  and  discoveries  "  ; 
are  a  part  of  the  results  among  all  English-speaking  peo- 
ples of  the  two  exceptions  in  this  famous  and  beneficent 
Act  of  Parliament. 

In  the  United  States  a  patent  lasts  for  17  years,  and  is 
not  reissued  except  by  a  special  act  of  Congress ;  a  copy- 
right lasts  for  28  years,  and  may  be  renewed  by  the  author, 
his  widow,  or  children,  for  14  years  longer.  In  the  consti- 
tution of  the  new  German  Empire  of  1871,  this  protection 
of  intellectual  property  (der  Schutz  des  geistigen  Eigen- 
thums)  is  expressly  included  in  the  matters  which  are  to 
be  dealt  with  by  the  Reichstag  or  imperial  parliament. 

Now  while  patents  and  copyrights  are  a  monopoly  under 
the  definition,  they  are  quite  distinct  in  their  purpose  and 
spirit  from  the  monopolies  already  described.  On  the 
whole,  Society  does  well  in  trying  to  protect,  by  law, 
inventors  and  thinkers  in  the  sole  use  and  benefit  of  their 
respective  products  for  a  brief  and  specified  time.  There 
are  large  difficulties  in  the  way  of  reaching  this  end  prac- 
tically, as  is  proven  by  the  endless  and  expensive  law- 
suits in  such  cases,  but  the  postulate  on  which  it  is 
attempted  is  sound,  namely,  that  otherwise  citizens  would 
have  less  motive  to  think  and  to  invent ;  since  in  that  case 
only  the  public-spirited  and  the  rich  could  or  would  devote 
themselves  to  an  important  branch  of  the  public  progress. 
A  patent  or  copyright  is  merely  a  return  service  which 
Society  renders  -for  a  service  received.  It  violates  no 
man's  right  of  property,  as  an  ordinary  monopoly  does,  but 
on  the  other  hand  is  a  provision  to  protect  for  a  time  a 
new  right  of  property  created  by  the  thought  and  efforts 
of  a  deserving  class  of  men.  The  phrase,  "intellectual 
property,"  used  above  in  translating  from  the  German,  is 
not  well  chosen,  since  we  have  amply  learned  that  any- 
thing is  property  that  can  be  bought  and  sold,  that  simple 


134  PRINCIPLES    OF   POLITICAL  ECONOMY. 

rights  of  many  kinds  are  constantly  on  sale  in  the  market, 
and  consequently  that  patents  and  copyrights  are  at  once 
proper  and  property  because  they  are  a  technical  return- 
service  for  other  services  ready  to  be  rendered  to  the 
community. 

(b)  Revenue  Rights.     Once  at  a  court  ball,  Napoleon 
the  First  noticed  a  lady  very  richly  dressed  and  wearing 
splendid  diamonds,  and  on  asking  for  her  name,  ascer- 
tained that  she  was  the  wife  of  a  tobacco  manufacturer  of 
Paris;  whereupon  it  occurred  immediately  to  the  quick 
mind  of  the  French  ruler,  that  the  State  might  just  as  well 
have  those  great  profits  as  an  individual ;  and  the  sale  of 
tobacco  in  all  its  forms  became  accordingly  a  State  monop- 
oly in  the  interest  of  taxation,  and  so  it  has  continued  to 
this  day,  and  yields  now  about  400,000,000  francs  a  year. 
Other  nations  have  adopted   to  some  small   extent   this 
mode  of  indirect  taxation  of  their  people.     By  legally  cut- 
ting off  the  competition  of  all  private  dealers  in  the  taxed 
article,  and  by  preventing  to  the  utmost  of  their  power  its 
being  smuggled  into  the  country,  Governments  are  ena- 
bled to-  sell  the  article  at  a  price  enhanced  artificially  by 
the  monopoly;   but  all  that  the  people  are  made  to  pay 
extra  under  the  monopoly,  saving  the  costs  of  maintaining 
it,  goes  directly  into  the  treasury  of  the  State  ;   and,  so 
far  forth,  becomes  an  unobjectionable  mode  of  taxation. 
Under  all  forms  of  taxation,  the  aim  should  clearly  be, 
that  the  Treasury  receive  all  that  the  People  are  made  to 
pay,  except  the  cost  of  an  economical  collection. 

(c)  Tariff  Monopolies.     The  United  States  has  never 
undertaken,  like  France  and  Germany,  to  vend  directly 
and  exclusively  an  article  taxed  by  themselves  for  the  sole 
purpose  of  revenue ;  but  unfortunately  they  have  under- 
taken and  still  maintain  (1890)  monopolies  a  thousand 
times  more  unjust  and  objectionable  than  any  such  rev- 


MATERIAL  COMMODITIES.  135 

enue-monopoly  can  be ;  they  have  laid  distinct  tariff-taxes 
upon  thousands  of  foreign  articles,  not  with  the  design  of 
getting  revenue  from  them,  but  with  an  avowed  and 
realized  design  of  preventing  revenue  by  means  of  these 
taxes,  since  they  have  made  the  taxes  so  high  and  onerous 
as  to  be  in  many  cases  absolutely  prohibitory  of  the  entry 
of  the  goods,  and  in  all  cases  more  or  less  prohibitory  of 
such  entry.  Revenue  can  only  be  gotten  on  goods  that 
come  in,  while  the  very  intent  and  result  of  these  taxes  is 
to  shut  the  foreign  goods  out  on  which  they  are  levied,  so 
as  to  give  certain  domestic  producers  (who  have  them- 
selves secured  this  legislation)  the  monopoly  of  the  home 
market  in  these  goods. 

This  is  the  very  core  of  public  wrong-doing.  This  is  the 
worst  form  of  monopoly  that  ever  existed  in  a  civilized 
country.  Queen  Elizabeth's  monopolies,  which  so  roused 
the  ire  of  the  Parliament  of  1601,  were  nothing  in  enor- 
mity as  compared  with  these  tariff-taxes.  Civilization  long 
ago  sloughed  off  such  direct  grants  of  personal  privilege 
as  were  forbidden  forever  by  the  Act  of  1624,  and  accord- 
ingly there  is  no  need  of  mentioning  these  in  the  present 
classification.  Tariff-taxes  for  other  ends  than  pure  rev- 
enue are  the  worst  monopolies  in  existence,  because  (1) 
they  compel  the  people  to  pay  under  ostensible  taxes 
many  times  more  than  the  Treasury  gets  from  them  in 
actual  revenue;  (2)  they  are  wholly  deceptive  in  their 
terms,  and  their  operation  is  clothed  in  disguises  difficult 
to  strip  off ;  (3)  they  are  always  put  on  at  the  instance 
and  under  the  pressure  of  the  man  (or  men)  who  expects 
thereby  to  raise  the  price  of  his  own  wares  at  the  expense 
of  his  countrymen;  (4)  they  create  under  legal  forms 
however  unconstitutional  privileged  classes  in  the  com- 
munity; (5)  their  first  effect  is  invariably  to  make  the 
rich  richer  and  the  poor  poorer ;  (6)  their  ultimate  effect 


136  PRINCIPLES   OF   POLITICAL   ECONOMY. 

is  to  impoverish  the  privileged  classes  themselves  by  taking 
away  from  them  the  natural  spur  of  competition  and  self- 
dependence,  in  consequence  of  which  their  own  goods 
become  poor,  and  their  zeal  flags,  and  they  come  to  lean 
still  more  heavily  on  monopoly-supports;  (7)  they  destroy 
the  market  for  domestic  goods  to  precisely  the  same  extent 
as  they  cut  off  the  market  for  foreign  goods,  and  (8)  their 
whole  retinue  of  evils  is  wrapped  up  in  the  great  fact,  that 
the  Diversity  of  Relative  Advantage  is  thereby  diminished 
both  as  among  domestic  producers  of  commodities  and  as 
between  foreign  and  domestic  producers. 

The  expression,  "natural  monopoly,"  is  sometimes  used 
of  those,  who,  under  freedom,  and  using  to  the  utmost 
their  natural  gifts  and  acquired  skill,  have  distanced  all 
local  competitors,  and  may  be  said  to  control  the  market 
in  their  own  interest,  furnishing  the  best  goods  at  the 
cheapest  rates.  This  is  in  no  proper  sense  of  the  term  a 
"monopoly."  Production  has  no  complaint  to  make  of 
any  such  pre-eminence  in  excellence  and  opportunity.  It 
harms  nobody  and  benefits  everybody.  Exchange  rejoices 
over  every  man  and  woman  and  child,  who  so  puts  his 
head  and  heart  and  hand  into  his  own  peculiar  product  as 
to  outstrip  all  others  in  that  one  line  in  point  of  ease  and 
excellence,  and  so  be  able  to  offer  a  service  at  once  better 
and  cheaper  than  any  one  else  can  offer  it  then  and  there ; 
and  when  all  men  and  women  and  children,  so  far  as  they 
are  employed  commercially,  come  to  possess  a  "natural 
monopoly"  each  in  his  own  specialty,  then  Exchanges 
become  as  profitable  and  progressive  as  possible  then 
and  there,  because  the  ever-blessed  diversity  of  relative 
advantage  has  its  utmost  limit. 

4.  We  come  now  to  consider  the  natural  LIMITS,  if  any 
such  there  be,  to  the  Production  of  material  commodities. 
This  point  has  been  much  discussed.  For  example,  Dr. 


MATERIAL   COMMODITIES.  137 

Chalmers,  a  Scotch  clergyman  of  great  intelligence,  pro- 
foundly moved  by  the  condition  of  the  poor  in  Glasgow, 
published  in  1822  an  interesting  but  not  over-sound  treatise 
entitled  "  Political  Economy,"  in  which  the  proposition  is 
maintained,  that  the  universal  market  is  strictly  limited, 
and  therefore  that,  were  it  not  for  the  unproductive  con- 
sumption of  the  rich  and  luxurious,  and  the  equally 
unproductive  consumption  of  national  wars,  there  would 
soon  be  a  general  glut  of  material  commodities,  and  con- 
sequently Production  would  have  to  cease  for  the  lack  of 
a  vent  for  its  products.  Pretty  soon  we  shall  be  able  to 
detect  the  enormous  fallacy  in  this  proposition.  On  the 
other  hand,  in  1803,  Jean-Bap tiste  Say,  a  very  competent 
French  economist,  in  chapter  xv  of  his  well-known  trea- 
tise, fully  developed  this  very  important  proposition,  if 
true,  namely,  that  production  may  go  on  indefinitely  in  all 
directions  without  ever  a  fear  of  reaching  a  general  glut  of 
products. 

What  is  a  market  ?  What  is  a  limited  market  ?  What 
is  an  illimitable  market  ?  A  market,  as  we  have  already 
seen  in  substance,  is  nothing  in  the  world  but  certain 
persons  somewhere  with  return-services  in  their  hands 
desirous  to  part  with  these  in  order  to  get,  that  is,  to  buy, 
some  other  services  offered  in  exchange.  Each  set  of 
services  is  equally  a  market  in  relation  to  the  other  set. 
A  market  is  always  persons  having  something  in  their  hands 
to  sell.  Buyers  and  sellers  are  equally  a  market  in  relation 
to  each  other.  Whenever  anybody  goes  forth  to  buy,  he 
must  of  course  take  with  him  something  with  which  to 
pay  for  what  he  wants  to  buy,  that  is  to  say,  he  must 
become  a  seller  the  very  instant  he  becomes  a  buyer ;  and 
whenever  anybody  wants  to  sell  something,  he  must  of 
course  \vant  something  already  in  the  hands  of  somebody 
else,  in  which  to  take  his  pay,  that  is,  he  becomes  a  buyer 


138  PRINCIPLES   OF  POLITICAL  ECONOMY. 

the  moment  he  becomes  a  seller.  This  helps  us  to  see 
perfectly  what  a  market  is.  Defined  in  the  terms  of 
persons,  a  market  is  two  men,  each  glad  to  get  the  product  of 
the  other,  and  to  render  in  return  his  own  product;  defined 
in  the  terms  of  things,  a  market  for  products  is  products  in 
market. 

Now,  what  can  limit  the  universal  market  for  material 
products?  Clearly,  it  can  only  be  limited  either  in  the 
element  of  Desires  or  in  the  element  of  return-Services. 
But  the  desires  of  all  men,  even  of  one  man,  which  the 
efforts  of  other  men  may  satisfy,  have  never  yet  come  to  a 
stand-still.  Who  ever  heard  of  even  one  man,  who  was  in 
possession  of  all  the  products  of  all  kinds,  that  he  wanted  ? 
Even  if  there  were  one  such  man  somewhere,  there  are 
millions  upon  millions  of  other  men,  whose  desires  for 
products  such  as  the  efforts  of  other  men  can  furnish  are 
unlimited  in  number  and  infinite  in  degree.  It  is  not 
possible,  therefore,  that  there  should  be  a  lack  of  human 
desires  anywhere,  that  could  put  any  bound  to  the  pro- 
duction of  commodities  or  hinder  in  the  least  its  ever- 
swelling  march. 

If  only  two  things  can  limit  the  universal  market,  and 
if  there  never  has  been  and  never  can  be  any  lack  on  the 
part  of  some  men  of  Desires  which  the  efforts  of  other 
men  can  satisfy  through  exchange,  can  there  ever  be  any 
lack  in  the  second  element  of  a  market,  namely,  in  Return- 
services  ?  It  is  not  meant  to  be  asserted,  that  there  are 
not  definite  limitations  at  any  one  time  or  place,  or  in  the 
whole  world  at  any  given  period,  in  the  capacities  of  men 
then  and  there  to  produce  material  commodities,  with  their 
knowledge  of  things  and  powers  of  invention  ;  but  what  is 
meant  to  be  asserted  is  this,  that  wherever  Production  is 
most  busy  and  universal  in  response  to  the  desires  of  some 
men  somewhere,  there  will  be  the  greatest  plenty  of  return- 


MATERIAL   COMMODITIES.  139 

services,  with  which  to  pay  for  the  services  of  these  "some 
men  somewhere "  offered  in  response  to  the  desires  of 
the  first  set  of  producers.  Therefore,  no  general  glut  of 
products  is  possible  to  occur.  The  more  and  the  more 
kinds  of  commodities  produced  anywhere,  the  better  mar- 
ket that  for  the  more  and  the  more  kinds  of  commodities 
produced  somewhere  else.  The  nearer  Industry  may  seem 
to  be  about  to  come  to  the  goal  of  a  limit,  the  farther  off 
from  that  goal  it  is  in  reality.  The  aggregate  of  human 
industrial  powers  has  indeed  a  potential  limit  at  any  one 
moment,  but  the  knowledge  of  things  and  the  power  of 
invention  and  the  means  of  transportation  are  enlarging 
every  moment  of  time  ;  so  that,  that  potential  limit  never 
can  become  an  actual  limitation.  Human  industry  will  go 
on  enlarging  and  diversifying  itself  so  long  as  the  world 
shall  stand. 

Let  us  put  this  vastly  important  argument  in  other  and 
briefer  words:  the  Desires  of  men  which  the  Efforts  of 
other  men  can  satisfy  through  exchange  are  unlimited  in 
number  and  indefinite  in  degree;  and  therefore,  mutual 
industrial  efforts  can  continue  to  be  put  forth  in  exchange, 
until  these  unlimited  and  indefinite  desires  of  all  men  are 
all  met,  —  a  goal  which  clearly  never  can  be  reached. 

This  proposition  demolishes  at  a  stroke  the  fallacy,  that 
pervades  Dr.  Chalmers'  book  but  just  now  alluded  to; 
and,  what  is  more  to  the  present  point,  demolishes  equally 
fallacies  current  and  prevalent  in  the  United  States  at  this 
hour.  What  our  national  industries  need  and  all  they 
need,  what  they  always  needed  and  all  they  ever  will  need, 
is  a  quick  market  for  their  products ;  products  in  market 
is  the  only  market  for  products;  but  the  United  States 
for  30  years  past  has  been  putting  vast  obstacles  in  the 
shape  of  formidable  taxation  in  the  way  of  the  presence  of 
products  from  abroad  in  our  domestic  market,  and  conse- 


140  PBINCIPLES   OF   POLITICAL   ECONOMY. 

quently  and  inexorably  the  market  for  domestic  products 
has  been  lost  in  foreign  countries,  to  the  immense  arid 
irreparable  damage  of  domestic  producers  as  well  as  to  the 
foreign  producers  themselves. 

No  general  glut  of  exchangeable  products  is  possible  to 
take  place  in  this  world  under  natural  liberty  and  just 
law,  because  under  these  the  diversity  of  relative  advan- 
tage and  consequently  the  profitableness  of  commercial 
exchanges  is  all  the  time  widening  everywhere,  tending 
to  bring  the  whole  earth  into  a  commercial  and  blessed 
union. 

On  the  other  hand,  while  a  general  glut  of  products  is 
impossible  to  occur  under  a  decent  freedom,  a  partial  glut 
in  respect  to  certain  commodities  in  certain  places  is  very 
common.  Through  want  of  foresight  as  to  a  prospective 
demand,  or  miscalculation  as  to  its  probable  amount,  par- 
ticular services  are  sometimes  offered  in  too  great  abun- 
dance or  of  a  kind  not  now  adapted  to  the  chosen  market, 
and  in  respect  to  these  the  market  may  truly  be  said  to 
be  glutted.  This  frequently  happens  with  editions  of 
books ;  more  copies  are  printed  than  can  be  sold  at  paying 
prices.  Also,  when  the  fashion  changes,  which  is  after 
all  less  capricious  than  is  commonly  supposed,  the  goods 
that  were  fashionable  but  are  so  no  longer,  are  very  apt  to 
be  somewhere  in  excess  of  the  demand  for  them.  Nothing 
can  then  hinder  a  partial  or  total  loss  in  their  value  in  the 
hands  of  their  last  holders.  Precautions,  however,  may 
well  be  taken  to  avoid  losses  of  this  character,  through  the 
cultivation  of  foresight,  and  by  studying  as  accurately  as 
possible  the  nature  of  human  desires  and  the  not  altogether 
irregular  changes  that  have  been  observed  to  take  place  in 
them.  This  constitutes  the  art  of  mercantile  sagacity ; 
and  the  most  successful  producers  in  all  the  departments 
of  exchange  are  those  who  best  develop  this  attainable 


MATERIAL   COMMODITIES.  141 

sagacity,  who  adapt  their  particular  services  closest  to  the 
existing  and  to  the  coming  demands ;  who,  to  excellence 
in  the  substance  of  their  products,  add  taste  and  attrac- 
tiveness to  their  form ;  and  who,  as  the  result  of  this,  tend 
rather  to  lead  the  fashions  of  the  many  than  to  follow  in 
their  wake.  It  cannot  be  wrong  to  repeat  here  in  sub- 
stance, what  has  indeed  been  said  already  in  another  con- 
nection, that  Production  as  a  general  rule  is  no  dead  level 
of  monotonous  exertion,  —  no  going  forth  and  coming 
back  on  precisely  the  same  track,  —  since  its  sphere  is 
Life  with  all  its  wants  and  Man  with  all  his  desires ;  since 
there  is  scope  and  verge  enough  for  the  development  of 
ingenious  minds  in  almost  all  of  its  departments ;  and 
since  its  ultimate  goal  is  beyond  the  ken  of  man. 

5.  We  must  now  study  with  considerable  pains  the 
ultimate  facts  and  the  essential  functions  of  LANDS  in 
connection  with  the  Production  of  material  commodities. 
This  has  always  been  the  most  vexed  question  in  our 
Science ;  but  it  is  approaching,  even  if  it  has  not  already 
reached,  a  satisfactory  and  final  solution.  The  present 
writer  believes  that  his  own  studies  and  researches  have 
thrown  some  original  and  important  light  upon  the  per- 
plexing problem  of  the  Value  of  lands  and  of  their  prod- 
uce. His  present  readers  are  surely  entitled  to  his  clearest 
possible  presentation  of  all  the  facts  and  principles  of  this 
radical  question. 

The  French  "  physiocrats "  of  a  hundred  years  ago, 
founders  of  the  first  School  in  Political  Economy,  excel- 
lent men  for  the  most  part  as  well  as  good  economists  in 
general,  thought,  that  lands  were  property  in  a  peculiar 
and  eminent  sense,  that  they  were  the  ultimate  source  of 
all  values  but  their  own,  and  that  consequently  lands 
should  bear  the  weight  of  the  national  taxes.  English 
economists,  constituting  with  their  followers  in  other  coun- 


142  PKINCIPLES   OF   POLITICAL   ECONOMY. 

tries  the  second  School  in  our  Science,  while  not  going  to 
the  length  of  the  physiocrats,  still  maintained  that  the 
value  of  lands  and  of  the  produce  of  lands  were  distinct 
in  important  respects  from  all  other  values  whatever.  In 
our  own  time  and  country,  Henry  George,  though  belong- 
ing for  the  most  part  to  the  third  economic  School,  is  a 
great  stickler  for  a  single  tax  on  lands  in  lieu  of  all  other 
taxes.  We  must,  then,  concentrate  all  the  lights  we  can 
gather  on  these  points  of  dispute  and  difficulty. 

(a)  The  presumption  in  science  is   always  against   the 
existence  of  a  few  outlying  cases,  whenever  the  induction 
has  been  long  and  carefully  conducted  by  many  persons,  and 
the  generalization  appears  on  all  other  grounds  to  be  sound 
and  comprehensive.    All  induction  proceeds  upon  the  pre- 
mise, that  Nature  is  uniform  in  those  essential  resemblances 
that  constitute  a  class  of  things  in  science.     Nature  has  so 
often   justified   confidence   in   her   essential  resemblances 
even  under  the  greatest  differences  in  external   circum- 
stance   and    apparent    diversity,    that    the    presumption 
becomes  immensely  strong  in  her  favor,  whenever  a  gen- 
eralization patiently  gathered  from  many  particulars  seems 
to  cover  the  whole  ground  concerned  except  a  few  obsti- 
nate-looking items,  that  have  not  yet  been  closely  studied. 
Two  to  one  these  items  also  will  presently  fall  into  their 
predestined   place.      We    have    already    seen    abundant 
grounds  for  believing,  that  Values  arise  from  human  ser- 
vices rendered  and  received :  is  it  at  all  likely,  considering 
the  nature  of  scientific  generalization  and  the  history  of 
all  the  more  advanced  sciences,  that  in  Political  Economy, 
lands  and  their  produce  should  be  found  to  constitute  an 
outlying  exception  to  the  law  of  all  other  valuable  things? 

(b)  There  is  one  vital  distinction  to  be  made  at  the 
outset  and  held  to  throughout  the  discussion,  namely,  that, 
between  all  lands  as  a  physical  thing,  which  God  made  and 


MATERIAL   COMMODITIES.  143 

gave  to  all  men  in  common  without  any  effort  of  their 
own,  and  some  lands  now  as  a  valuable  thing,  in  all 
probability  made  such  through  the  action  of  human  desires 
and  human  efforts  brought  to  bear  upon  what  was  merely 
physical  but  what  has  now  become  valuable.  The  failure 
to  distinguish  between  lands  as  such  and  valuable  lands  as 
such,  has  always  wrought  confusion  and  mischief  in  the 
land  problem.  The  two  things  are  utterly  different  and 
incommensurable.  There  are  vast  stretches  of  lands  on  the 
surface  of  the  earth,  to  which  no  value  ever  attached  or 
ever  will  attach.  They  are  lands,  and  that  is  all.  Political 
Economy  has  nothing  to  say  of  them,  and  nothing  to  do 
with  them.  Because  they  are  never  bought  or  sold, 
because  they  never  give  birth  to  "  produce,"  they  lie  wholly 
outside  the  field  of  Value.  Then  there  are  immense  areas 
of  lands  now  valuable,  that  were  once  as  valueless  as  the 
first  class.  With  these  Political  Economy  has  a  great  deal 
to  do,  and  also  with  the  way  in  which  they  passed  from 
valueless  to  valuable.  Then  there  is  a  third  class  of  lands, 
that  have  not  yet  been  studied  as  they  ought  and  till 
recently  have  not  been  studied  at  all,  namely,  those  known 
to  have  been  valuable  at  one  time,  but  which  have  now  lost 
their  value  either  wholly  or  in  large  measure.  There  are 
such  lands  as  these  in  every  State  of  our  Union,  and  in 
every  civilized  country  beneath  the  sun;  and  Political 
Economy  has  already  learned  something,  and  is  destined  to 
learn  much  more,  about  the  processes  by  which  lands  pass 
from  out  the  first  great  class  into  the  second,  and  from  the 
second  into  the  third.  Valueless,  Valuable,  Unvalued, — 
these  three  words  describe  to  the  economist  all  the  lands  of 
the  world. 

(c)  If  we  may  trust  the  simple  record  in  Genesis,  the 
whole  earth  was  given  of  God  to  the  whole  race,  under  the 
direction  that  they  "  replenish  and  subdue  it"  All  the  lands 


1:1:4  PRINCIPLES   OF   POLITICAL  ECONOMY. 

were  then  certainly  valueless,  although  some  of  them  were 
doubtless  possessed  of  Utility,  that  is,  a  capacity  to  gratify 
human  desires  through  a  direct  appropriation,  which  is  a 
very  different  thing  from  Value,  which  last  is  the  rendering 
and  receiving  of  equivalents  as  between  two  persons.  It 
seems  very  plain,,  that  under  this  word,  "  Subdue,"  and 
under  the  human  services  implied  in  that,  came  in  the 
first  idea  of  ownership  in  land.  When  a  family  or  tribe 
commenced  the  work  of  subjugation  upon  a  piece  of  land, 
when  they  enclosed  it,  settled  on  it,  tilled  it,  in  any  way 
whatever  improved  it  by  their  own  toil,  then  could  first  the 
idea  of  ownership  dawn  upon  their  minds,  then  first  began 
that  land  to  be  capable  of  value,  since  now  that  family 
might  reasonably  say  to  another,  If  you  want  this  field,  you 
must  give  us  an  equivalent  for  what  we  have  expended  on 
it  to  improve  it.  If  the  transfer  took  place,  what  was  it 
that  was  sold  ?  What  was  it  that  was  paid  for  by  the  party 
of  the  second  part  ?  It  could  not  be  the  inherent  quality 
of  the  soil,  it  could  not  be  anything  that  the  first  family 
had  gratuitously  entered  upon,  because  similar  free  land 
with  all  its  inherent  qualities  lay  open  to  occupation  on 
every  hand,  and  the  second  family  would  surely  say,  For 
as  much  effort  as  you  have  put  upon  your  land  to  better  it, 
we  can  make  other  free  land  as  good  as  yours,  consequently 
we  can  give  you  no  more  at  the  most  than  a  fair  equivalent 
for  your  efforts  already  expended.  If  the  parcel  were  sold, 
therefore,  the  value  of  it  must  have  been  determined, 
not  by  the  gratuitous  elements  involved  but  the  onerous 
elements  involved.  The  physical  thing,  land,  which  cost 
nothing,  has  now  become  the  valuable  thing,  land,  through 
a  series  of  human  efforts  expended  of  such  kind  as  call 
out  human  desires  for  the  results  reached,  and  justify  the 
rendering  of  return-services  for  them ;  and  that  which  the 
buyer  pays  for  is  never  the  free  old  but  always  the  onerous 


MATERIAL   COMMODITIES.  145 

new;  new  utilities,  that  cost  something,  have  been  added 
to  and  intermixed  with  old  utilities,  that  cost  nothing; 
and  solely  in  consequence  of  this  expenditure  of  efforts  on 
the  part  of  some  men,  answering  to  the  desires  and  calling 
out  the  efforts  of  other  men,  do  parcels  of  land  pass  out 
from  the  first  great  class  into  the  second  great  class.  So 
far  as  it  can  be  gathered  from  the  nature  of  the  case,  and 
from  the  known  steps  of  past  experience,  this  is  the  simple 
and  rational  process  by  which  valueless  lands  become 
valuable,  and  less  valuable  become  more  valuable  lands. 

(d)  This  line  of  proof,  strong,  in  itself,  is  strengthened 
by  observing  how  land-parcels  gradually  and  practically 
pass  out  from  the  second  into  the  third  class  of  lands, — 
from  the  Valuable  into  the 'Unvalued.  As  it  is  only  human 
Efforts  wisely  bestowed  upon  valueless  lands  or  in  some 
connection  with  them,  that  ever  make  these  valuable,  so  it 
is,  that  these  Efforts  intermitted  for  a  time,  or  less  wisely 
bestowed,  or  reckoned  less  in  harmony  with  the  present 
and  prospective  desires  of  other  men,  invariably  cause  a 
loss  of  value  in  valuable  lands;  and,  if  such  neglect  or 
unwisdom  of  effort  continue  long  enough,  nothing  is  more 
certain,  than  that  lands  so  treated  will  lose  their  value 
altogether,  nobody  will  give  anything  for  them,  they  will 
drop  out  from  the  second  class  into  the  third  by  the  same 
path  (only  in  inverse  order),  by  which  they  crept  at 
first  from  valueless  to  valuable.  Under  the  writer's  own 
observation  in  different  parts  of  New  England,  whole  tiers 
of  farms  once  valuable  and  productive  have  lost  that 
character  either  wholly  or  for  the  most  part,  taxes  can  no 
longer  be  collected  from  them,  nobody  will  really  give 
anything  for  them  in  exchange,  they  are  abandoned  of 
their  former  owners,  they  are  left  to  lie  waste  or  to  grow 
up  into  forest  again.  It  follows  from  all  this  beyond  a 
doubt,  and  the  logical  issue  is  one  of  vast  consequence  to 


146  PRINCIPLES   OF   POLITICAL   ECONOMY. 

mankind,  that  Value  is  no  attribute  of  matter,  no  inherent 
quality  of  lands  as  such  wherever  situated,  but  it  comes 
and  goes,  it  is  a  relation  of  mutual  purchase  between 
human  services  rendered  and  received. 

(e)  Land-parcels  becoming  valuable  in  the  way  but  just 
now  indicated,  and  so  long  as  they  continue  valuable,  that 
is,  salable,  are  technically  Commodities,  according  to  our 
triple  division  of  all  Valuables.  They  belong  in  this 
grand  division,  that  we  are  specially  studying  in  this 
chapter,  for  the  same  reason  as  a  horse  does  or  a  steam- 
engine  does.  Men  did  not  originally  make  the  land  as  a 
congeries  of  matter,  neither  do  men  make  horses,  nor  do 
they  make  the  iron  ore  out  of  which  most  parts  of  the 
steam-engine  is  made ;  but  men  do  modify  bits  of  the  land 
as  God  made  it,  they  subdue  it,  they  improve  it  in  mani- 
fold ways,  they  make  it  desirable  in  the  eyes  of  other  men, 
and  thus  or  otherwise  they  come  into  possession  of  it,  gain 
for  themselves  a  right  to  sell  it,  prepare  it  to  be  sold  and 
sell  it,  on  the  same  principle  as  men  raise  and  break  and 
train  horses  and  prepare  them  to  be  sold  and  sell  them, 
and  just  as  men  by  many  processes  transform  the  iron  ore 
into  a  steam-engine  and  sell  that.  Ricardo,  in  his  famous 
doctrine  of  Rent,  says  a  good  deal  about  "the  original  and 
indestructible  powers  of  the  soil "  ;  but  as  a  matter  of  fact, 
there  are  no  such' powers,  since  the  elements  and  properties 
that  constitute  land  are  all  the  time  changing  under  chem- 
ical and  other  action  ;  and  even  if  there  were  such  powers, 
it  would  still  be  impossible  to  separate  what  God  did  for 
the  land  from  what  men  have  done  in  order  to  fit  it  to  be 
sold ;  and  what  men  have  ever  been  authorized  to  take 
pay  from  other  men  for  what  God  did  in  the  creation  of 
the  world  ?  The  simple  truth  is,  that  Value  is  never  of 
God's  creation  but  only  of  men's  exertion.  There  never 
was  any  land  anywhere  fit  for  cultivation  and  sale  without 


MATERIAL   COMMODITIES.  147 

more  or  less  expenditure  of  human  labor  and  reserved 
capital  upon  it ;  and  the  "  powers  "  of  the  land,  whatever 
they  are,  instead  of  being  "  indestructible,"  are  in  a  con- 
stant process  of  wearing  out,  and  require  a  constant  appli- 
cation of  labor  and  capital  to  keep  up  their  fertility. 
Valuable  pieces  of  land,  accordingly,  like  all  other  com- 
modities, derive  their  utility  partly  from  the  free  contribu- 
tion of  Nature,  and  partly  from  the  onerous  contribution 
of  men ;  but,  on  the  other  hand,  they  derive  their  value, 
whether  the  value  be  then  increasing  or  diminishing, 
wholly  from  human  desires  and  corresponding  efforts. 

(f)  It  is  but  a  step  from  this  impregnable  position  to 
another,  namely,  that  Henry  George  is  wholly  wrong  in 
his  view,  that  there  is  Value  in  lands  as  God  made  them 
and  gave  them  to  men  in  common ;  and  consequently, 
wholly  wrong  in  his  doctrine,  that  a  single  tax  on  land 
values  would  be  just  and  equal  to  land  owners,  and  might 
well  be  made  to  take  the  place  of  all  other  taxes  on  all 
other  persons.  He  says  :  "  If  we  are  all  here  by  the  equal 
permission  of  the  Creator,  we  are  all  here  with  an  equal  title 
to  the  enjoyments  of  his  bounty"  What  bounty  ?  If  he 
means  the  original  utility  which  God  put  into  all  lands  in 
common,  and  which  certain  men  have  done  nothing  to 
better,  there  is  nobody  to  dispute  his  proposition.  But  he 
does  not  mean  that,  because  there  is  nothing  of  any  sig- 
nificance that  could  come  out  of  that.  What  he  means  is, 
that  it  is  God  and  not  man  who  makes  lands  valuable.  He 
makes  no  distinction  between  Utility  and  Value  in  lands. 
He  lumps  the  two  together  in  one,  and  calls  the  aggregate 
the  Creator's  "  bounty."  He  goes  on  to  say :  "  There  is 
on  earth  no  power  which  can  rightfully  make  a  grant  of  ex- 
clusive ownership  in  land"  Well !  Is  there  any  power  on 
earth  which  can  rightfully  deny  to  any  man  or  family  the 
proprietorship  of  his  own  exclusive  efforts,  nobody's  else 


148  PRINCIPLES   OF   POLITICAL   ECONOMY. 

rights  being  infringed  thereby  ?  Or  can  deny  to  him  or 
them  the  results  of  such  efforts,  however  embodied? 
When  valueless  lands  are  made  valuable  by  human  efforts 
expended  to  that  end,  does  not  the  "  value "  belong  to 
those  who  made  it?  When  valuable  lands  have  been 
made  more  valuable  than  they  were  by  the  efforts  and 
foresight  of  their  owners,  the  rights  of  others  untouched, 
does  not  the  "  increment "  belong  to  those  who  have  cre- 
ated it?  The  truth  is,  if  Henry  George's  powers  of  radical 
analysis  had  been  at  all  equal  to  his  remarkable  power  of 
rhetorical  presentation,  the  world  would  never  have  been 
treated  to  his  popular  and  imposing  land-fallacies.  Prud- 
hon's  "  Property  is  theft,"  and  George's  "  Single  tax  on 
land,"  rest  on  the  same  basis  of  socialism. 

(g)  All  valuable  land-parcels  are  material  Commodities, 
made  to  be  such  by  onerous  human  efforts  of  some  sort 
expended  upon  or  in  some  connection  with  the  free  Utilities 
furnished  by  Nature ;  the  utilities  are  one  thing  in  origin 
and  function,  and  the  values  are  a  very  different  thing  both 
in  origin  and  function;  and  the  present  point  is,  that 
nearly  all  valuable  lands  everywhere  are  Capital  also,  that 
is  to  say,  products  reserved  to  aid  in  a  further  and  future 
production.  Capital  is  a  relatively  small  class  under  the 
immensely  large  class  Values.  Capital  is  by  no  means 
coincident  with  Commodities,  since  vast  lines  of  the  latter 
are  consumed  with  no  reference  to  a  further  production 
by  means  of  their  use.  But  capital  is  always  either 
commodities  or  claims,  and  valuable  bits  of  land  are 
always  commodities  and  nearly  always  capital;  because 
all  tillage  and  pasture  lands,  all  forests  grown  for  wood  and 
timber,  and  lands  of  all  sorts  rented  or  held  for  resale  at  a 
higher  price,  are  capital  under  the  definition,  are  "products 
reserved  as  an  aid  to  further  production."  The  peculiarity 
of  all  farming  lands  is  this,  they  are  themselves  commodities, 


MATERIAL   COMMODITIES.  149 

in  whose  creation  God's  free  gifts  and  men's  onerous  labors 
have  conspired;  and  they  are  held  in  reserve  by  their 
owners  as  capital,  for  the  sake  of  producing  by  their  means 
with  the  help  of  more  of  God's  free  gifts  further  valuable 
commodities,  such  as  grain,  and  fruit  and  timber.  Farms 
in  their  highest  reach  of  previous  culture  still  need  for 
crops  the  sun  and  the  rain.  Indeed  the  sun  is  the  most 
useful  and  powerful  force  in  the  world.  Oh !  how  it  warms 
and  lifts  and  quickens !  Give  it  and  the  rain  and  the  dew 
but  a  fair  chance  on  lands  properly  prepared  for  them, 
and  endless  fields  blossom  like  the  rose  and  are  white  to 
the  harvest! 

Agriculture  always  has  been  and  always  will  be  the 
vocation  of  the  masses  of  mankind.  Under  a  fair  freedom, 
and  a  decent  law,  and  a  reasonable  industry,  Agriculture 
is  always  profitable ;  because  it  is  natural,  that  is,  designed 
by  God  for  the  welfare  of  mankind ;  because  it  lies  at  the 
basis  of  all  other  industries,  — most  of  the  food  of  mankind, 
most  of  the  raw  material  of  all  manufactures,  most  of  the 
subject-matter  of  all  national  and  international  commerce, 
—  come  out  of  the  farms  of  the  world;  because  it  has  been 
ordered  so  in  the  nature  of  things,  that,  under  a  tolerable 
freedom,  a  given  amount  of  agricultural  products  tends 
constantly  to  buy,  that  is,  to  pay  for,  more  and  more  of 
almost  all  kinds  of  manufactured  products,  for  a  reason  to 
be  explained  shortly,  thus  tending  strongly  to  uplift  the 
farming  masses  in  a  scale  of  comforts ;  and  because  there 
is  no  other  main  line  of  human  activities  so  constantly 
and  so  prodigiously  and  so  gratuitously  assisted  by  Natural 
Agents  as  is  Agriculture.  As  Milton  has  profoundly 
expressed  it  in  the  "Hymn  to  the  Nativity,"  the  Sun  is 
indeed  to  Mother  Earth  "her  lusty  paramour"  But  at 
this  very  time  of  writing  a  wail  is  coming  up  in  ever 
deepening  tones  from  Italy  and  France  and  Germany  and 


150  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Russia  and  especially  the  United  States,  that  a  colossal 
blunder  in  legislation  common  to  all  these  countries  now, 
say  rather  a  colossal  crime  of  the  powerful  few  against  the 
humble  many,  in  the  shape  of  tariff -monopolies,  neutralizes 
in  large  part  these  natural  advantages  of  agriculture, 
makes  farming  unprofitable  and  farmers  unable  to  pay 
their  taxes,  diverts  young  men  in  increasing  numbers  from 
the  farms  to  the  towns,  plasters  the  lands  over  with 
mortgages,  shuts  out  from  their  natural  markets  the 
products  of  the  land,  thus  depressing  their  price,  and  shuts 
off  from  farmers  by  outrageous  taxes  their  natural  supplies, 
thus  augmenting  their  price.  Farmers  in  all  these  countries 
are  revolving  between  the  upper  and  the  nether  millstones. 
Count  Giusso,  ex-Mayor  of  Naples,  and  now  a  deputy  from 
that  city,  has  just  made  a  speech  in  the  Italian  Parliament, 
which  sets  forth  in  strong  terms  the  great  depression 
in  Agriculture,  and  the  critical  condition  of  the  public 
finances,  brought  about  by  the  new  policy  of  protectionism 
there.  He  says :  "  The  Utopian  idea  of  creating  an 
industrial  Italy  on  the  ruins  of  an  agricultural  Italy,  has 
been  a  colossal  error  big  with  disastrous  results.  We  have 
preferred  the  shop  to  the  land ;  we  have  preferred  the  coal 
we  do  not  possess  to  our  Italian  sun  ;  we  have  preferred  the 
motive  force  of  steam  to  the  most  powerful  motive  force  in 
the  universe,  the  sun;  and  we  are  naturally  suffering  the 
sad  consequences"  Exports  increased  in  Italy  in  1888  by 
124,000,000,  and  imports  by  $42,000,000 ;  and  the  Count 
quotes  the  cry  coming  up  from  one  end  of  the  Peninsula 
to  the  other :  "  G-ive  us  the  means  of  selling  our  products, 
and  we  will  pay  the  taxes"  England  is  the  only  consider- 
able country  in  the  world,  whose  customs-revenue  increased 
in  the  fiscal  year  1888-89  over  the  year  before ;  this  English 
increase  was  over  5  per  centum,  which  means  an  increase 
both  in  imports  and  exports,  whose  movements  are  almost 


MATERIAL   COMMODITIES.  151 

absolutely  free  so  far  as  England  is  concerned;  while  in 
all  the  countries  mentioned  above,  which  are  under  a 
different  system  in  that  respect,  there  was  a  deficit  of 
revenue  from  tariff-taxes  as  compared  with  the  year  before, 
and  a  decrease  in  both  exports  and  imports. 

(h)  If  nearly  all  bits  of  valuable  lands  be  capital,  as  we 
have  just  seen  strong  grounds  for  believing,  then  it  follows 
of  course,  that  the  Rent  of  leased  lands  whether  for  buildings 
or  harvests  is  the  same  in  nature  with  the  Interest  on  money 
loaned,  and  is  the  measure  of  the  service  rendered  by  the 
owners  to  the  actual  users  of  the  Capital.  This  proposition, 
seen  in  its  radical  proofs  and  in  its  logical  corollaries,  takes 
the  very  life  out  of  Henry  George's  land-theories,  and  out 
of  the  popular  remedies  thereto  annexed.  The  writer 
firmly  believes  also,  that  this  proposition  in  the  grounds  of 
it  and  in  the  inferences  from  it  might  have  been  used  by 
Mr.  Gladstone  and  his  followers  with  telling  effect  in  the 
animated  discussions  of  the  Irish  land-question  in  the  Brit- 
ish Parliament  during  the  decade  1880-90.  In  the  debates 
on  the  Irish  Land  Bill  passed  in  1881,  the  representatives 
of  the  land-owners  in  Ireland  held  to  their  right  to  take 
all  the  rent  they  could  extort  by  the  help  of  the  law ;  on 
the  other  hand  the  representatives  of  the  Irish  rent-payers 
held  to  their  right  as  cultivators  and  maintainers  to  with- 
hold rent  in  large  part  or  altogether ;  and  Mr.  Gladstone, 
as  representative  of  the  nation,  while  insisting  on  the 
right  of  the  owners  to  certain  rents,  insisted  equally  on 
the  right  of  the  cultivators  to  certain  important  privileges 
in  the  soil.  Our  present  proposition  with  those  that 
spring  out  of  it,  though  it  was  not  used  by  Gladstone,  as 
it  might  well  have  been  to  smooth  his  pathway  through 
the  roughness  of  that  legislation,  yet  justifies  at  one  and 
the  same  time  the  discontent  of  the  Irish  rent-payer,  the 
claim  of  the  Irish  land-holder  to  an  assured  rent  of  some 


152  PRINCIPLES  OF  POLITICAL  ECONOMY. 

sort,  and  the  fundamental  principle  of  the  Irish  Land  Bill 
of  1881.  That  bill  gives  a  certain  modified  ownership  and 
control  to  the  actual  cultivators  and  maintainers  of  the 
soil.  That  is  right. 

The  principle  of  land-values  herewith  enunciated,  their 
uprise  and  increase  and  frequent  decay  also  in  all  land- 
parcels,  justifies  completely  the  concessions  to  tenants  in 
that  bill ;  while  the  old  and  still  commonly  accepted 
English  principles  of  land,  and  the  false  yet  famous  doc- 
trine of  Rent  promulgated  by  Ricardo  at  the  beginning  of 
the  century,  are  wholly  against  Gladstone  and  his  conces- 
sions in  that  bill.  Let  us  now  see  whither  simple  analysis 
and  logical  processes  will  quickly  bring  us  in  this  whole 
matter.  Valuable  land  was  once  valueless,  and  always 
remained  so,  until,  by  virtue  of  human  efforts  expended 
upon  it  or  in  some  direct  connection  with  it,  coupled  with 
the  desires  of  certain  other  men  for  that  land  or  its  prod- 
uce, accompanied  with  a  readiness  on  the  part  of  these 
men  to  render  some  equivalent  for  it  or  its  use,  first 
imparted  value  to  that  particular  patch ;  moreover,  it  has 
been  found  in  practice  ten  thousand  times,  just  as  one 
would  expect,  knowing  the  origin  of  value  in  general, 
that,  unless  human  efforts  are  further  and  constantly 
expended  on  or  in  connection  with  that  piece,  and  unless 
desires  of  other  men  continue  to  turn  towards  it  in  the 
way  of  exchange,  its  value  will  silently  and  inevitably 
escape  from  it;  therefore,  whoever  has  come  into  posses- 
sion of  that  valuable  piece  of  land  by  purchase  or  in- 
heritance, and  foregoes  the  use  of  it  in  favor  of  another 
as  a  tenant,  is  morally  and  commercially  entitled  to  the 
stipulated  return  for  that  use,  which  is  rent ;  but  also,  if 
that  other,  aside  from  the  current  use  which  is  always  a 
wearing-out  process,  contributes  in  any  way  to  the  contin- 
uance and  increase  of  the  value  and  fertility  of  the  land, 


MATERIAL   COMMODITIES.  153 

then  and  so  far  he  gains  rights  in  the  land  and  becomes  a 
sort  of  joint  owner  of  it,  since  what  he  has  done  in  the  way 
of  maintenance  and  improvement  is  inextricably  mingled 
with  what  the  other  owners  or  users  have  done,  and  is  of 
the  same  nature  with  that;  and,  therefore,  the  modified 
ownership  of  certain  tenants  recognized  in  Gladstone's  bill 
is  in  strict  accordance  with  ultimate  justice,  as  it  is  also 
in  strict  accord  with  right,  that  the  legal  owner  should 
continue  to  receive  a  return  in  the  shape  of  rent  for  all 
the  fertility  and  opportunity  actually  contributed  by  him, 
and  no  more.  The  discontent  of  the  Irish  peasantry  has 
largely  come  from  an  instinct  or  intelligence  more  unerr- 
ing than  the  economics  of  the  land-owners,  namely,  that 
they  are  called  on  to  pay  rent  for  what  they  themselves 
have  contributed  in  addition  to  the  rent  for  what  they  have 
received.  The  true  origin  of  value  in  land,  and  the  only 
way  in  which  value  in  land  is  kept  up,  seems  to  have 
penetrated  deeper  into  the  minds  of  Irish  tenants  than  into 
the  minds  of  many  British  statesmen. 

(i)  If  the  bulk  of  all  valuable  land-parcels  be  capital, 
as  it  is,  then  one  might  expect  beforehand  to  find  a  law  of 
diminishing  returns  from  such  lands,  agricultural  labor 
and  skill  remaining  the  same ;  because,  all  capital  is  tools 
made  such  by  the  expenditure  of  human  efforts  on  change- 
able material,  and  then  by  the  practice  of  abstinence,  and 
tools  from  their  very  nature  are  always  wearing  out. 
Increase  of  efforts  in  connection  with  any  form  of  capital 
unimproved  by  new  inventions  and  uninvigorated  by  fresh 
skill,  though  they  may  indeed  increase  the  aggregate 
return,  canrrot,  for  the  reason  just  given,  secure  an  increase 
proportioned  to  the  increase  of  the  efforts.  The  English 
writers  generally,  and  Mr.  Ricardo  in  particular,  justly  lay 
much  stress  on  this  proposition,  although  they  have  not 
taken  lands  to  be  capital,  and  have  proven  the  law  of 


154  PRINCIPLES   OF  POLITICAL  ECONOMY. 

diminishing  returns  in  a  different  way  from  ours,  and  con- 
sequently have  not  set  the  propositions  of  land  in  their 
best  and  most  ultimate  relations.  Their  method  of  prov- 
ing the  law,  however,  is  short  and  conclusive :  If  by  doub- 
ling the  efforts  upon  a  piece  of  land,  double  the  produce 
could  be  secured,  and  by  quadrupling  it,  quadruple,  and 
so  on,  there  would  be  no  reason  why  any  man  should  ever 
cultivate  more  than  a  square  acre,  or  even  a  square  rod. 
He  has  a  strong  motive  to  confine  his  culture  to  a  small 
space,  just  so  long  as  the  amount  of  produce  is  in  the  ratio 
of  the  efforts  expended,  because  there  is  less  locomotion  of 
tools  and  fertilizers  and  crops.  The  fact  that  he  extends 
his  culture  from  one  acre  to  another,  and  then  to  distant 
acres,  notwithstanding  the  inconvenience  and  expense  of 
transportation,  is  an  irrefragable  proof  of  the  proposition 
in  question.  Increase  of  agricultural  efforts  and  expendi- 
tures on  a  given  space  of  land  will  secure  a  larger  amount 
of  produce,  but  as  a  general  law,  the  increased  amount  will 
not  be  proportioned  to  the  increased  expenditure. 

It  is  through  this  law  of  diminishing  returns,  that  the 
Creator  has  secured  the  gradual  occupation,  by  men,  of 
almost  the  whole  earth.  There  is  a  strong  and  natural 
tendency  to  leave  the  old  acres  to  advance  upon  new,  the 
old  countries  to  emigrate  to  new,  whenever  the  returns 
begin  to  bear  a  more  unfavorable  ratio  to  the  labors 
bestowed.  The  farmer  will  advance  from  the  first  to  the 
second  acre  as  soon  as  he  thinks  that  more  produce  can  be 
obtained  from  it  by  a  given  amount  of  efforts  than  can  be 
gotten  by  a  like  expenditure  of  additional  efforts  upon  the 
first  acre,  allowance  being  made  for  the  increased  incon- 
venience ;  and  so,  cultivation  has  gradually  extended  itself 
and  men  have  become  dispersed  over  the  whole  earth. 
Other  principles  leading  to  dispersion  have  undoubtedly 
co-operated,  but  this  is  the  fundamental  one,  operative  at 


MATERIAL   COMMODITIES.  155 

all  times,  changing  the  course  of  population,  and  conse- 
quently of  empire. 

(j)  It  follows  from  the  points  already  made,  that  all 
permanent  improvements  in  agriculture  retard  the  operation 
of  the  law  of  diminishing  returns.  The  recent  introduction 
of  the  silo,  for  example,  upon  the  long-used  and  wearing- 
out  farms  of  New  England  promises,  if  the  public  law 
would  quit  throwing  in  obstacles,  to  help  restore  the  fer- 
tility of  many  of  them.  The  discovery  of  new  and  more 
available  fertilizers,  the  invention  of  better  agricultural 
implements,  the  light  thrown  by  chemistry  upon  agricul- 
ture, the  consequent  adoption  of  better  methods  of  culture 
and  rotation  of  crops,  the  more  perfect  adaptation  to  the 
various  soils  of  the  kinds  of  produce  sought  to  be  raised 
from  them,  —  all  these  and  similar  improvements  tend  to 
increase  the  ratio  of  produce  to  the  labor,  and  to  disguise 
the  law  just  established.  The  lands  that  are  now  under 
cultivation  may  be  made,  under  more  skilful  modes  of 
culture  to  yield  indefinitely  more  than  at  present,  and  the 
vast  still  uncultivated  lands  of  the  world  may  come  to 
render  an  incalculable  quantity  of  food  to  the  world's 
population;  but  yet,  as  improvements  are  naturally  less 
continuous  in  this  than  in  most  other  departments  of  pro- 
duction, as  invention  has  much  less  play,  as  there  is  less 
opportunity  for  the  division  and  co-operation  of  laborers, 
as  nothing  can  materially  shorten  the  time  during  which  the 
fruits  of  the  earth  must  ripen,  it  is  certain,  that  possible 
improvements  will  never  override  the  law  of  diminishing 
returns ;  and,  consequently,  that  the  value  of  agricultural 
produce  tends  constantly  to  rise  relatively  to  manufactured 
products  generally. 

(k)  The  last  point  to  be  made  under  the  general  topic 
we  are  now  discussing,  is,  that  the  lest  tenure  of  lands  in 
the  interest  of  the  production  of  material  commodities  is  the 


156  PRINCIPLES   OF   POLITICAL   ECONOMY. 

fee  simple  in  the  hands  of  the  actual  cultivators.  This  is 
the  old  Teutonic  holding;  but  special  circumstances  in 
the  British  Islands  have  gradually  changed  these  small 
holdings  once  cultivated  by  the  hands  of  their  free  owners 
into  large  estates,  the  parts  of  which  are  leased  out  at  will 
or  for  a  term  of  years  to  tenants  or  "  farmers  "  as  they  are 
there  called,  who,  in  turn,  being  small  capitalists,  as  the 
land-owners  are  large  capitalists,  furnish  the  stock  and  hire 
the  laborers  and  thus  become  the  actual  cultivators^,  and 
even  often  sublet  parts  of  their  own  leased  holdings  to 
tenants  of  the  next  degree  below,  who  can  furnish  less 
stock  and  can  hire  fewer  laborers.  The  word  "  farmer  "  as 
used  in  the  United  States  has  a  quite  different  meaning 
from  that  it  bears  in  Great  Britain ;  it  means  here  a  man 
cultivating  his  own  fields  with  his  own  funds  in  his  own 
way,  and  it  means  there  a  man  cultivating  another's  fields 
with  his  own  funds  in  a  way  and  on  terms  made  a  matter 
of  contract  between  the  two;  and  these  two  modes  of 
culture  are  so  distinct  that  they  are  not  likely  to  lie 
alongside  of  each  other  to  any  great  extent  for  a  very  long 
time  in  the  same  country.  Since  her  great  Revolution, 
and  under  the  action  of  the  law  requiring  the  equal 
partition  of  every  man's  landed  estate  among  all  his 
children,  France  has  had  for  the  most  part  the  small  holding 
tilled  by  the  owner's  own  hands,  instead  of  the  great  estates 
of  the  old  regime,  the  average  being  about  14  acres  to  each 
owner,  and  nearly  one  fourth  of  the  entire  population 
being  proprietors  of  land  either  in  town  or  country ;  in  the 
United  States  the  plough  is  guided  almost  wholly  by  the 
man  who  owns  the  soil  he  tills;  while  in  Great  Britain  the 
original  peasant  proprietor  has  almost  entirely  disappeared. 
Each  system  has  its  advocates  and  arguments. 

The  question  at  bottom  is,  whether  capital  in  the  form  of 
tillable  land  is  more  effective  when  held  in  large  masses 


MATERIAL  COMMODITIES.  157 

and  loaned  out  to  men,  who  possess  small  capitals  in 
another  form  than  land,  and  are  willing  to  apply  these  for 
a  return  upon  that  land,  or  when  held  in  small  masses  and 
used  as  capital  by  the  owners  themselves,  who  also  own 
some  capital  in  another  form  than  land  and  are  willing  to 
apply  this  to  their  own  profit  upon  their  l#nd.  We  hold, 
that  the  latter  method  is  better  than  the  former,  both  for 
the  maintenance  and  improvement  of  the  land  itself  as 
capital  and  also  for  the  current  production  of  commodities 
from  it,  because,  (1)  when  one  owns  the  farm  he  works, 
from  the  very  nature  of  permanent  ownership  he  takes  a 
greater  interest  in  it,  perhaps  he  has  inherited  it  from  his 
fathers,  perhaps  he  has  bought  it  and  paid  for  it  at  the 
hardest,  at  any  rate  it  is  his  own,  and  as  all  men  work  from 
motives  and  the  energy  of  the  work  is  proportioned  to  the 
constant  press  of  the  motives,  then  must  the  owner  of 
the  capital,  whose  abstinence  makes  it  capital,  be  under 
the  strongest  possible  motive  at  once  to  improve  his  capital 
and  also  to  make  the  current  produce  from  it  as  great  as 
possible,  since  the  capital  itself  and  all  it  yields  is  his  own ; 
moreover,  (2)  ownership  improves  the  moral  character  of 
the  cultivators,  it  tends  to  make  them  industrious,  thrifty, 
frugal,  independent,  hopeful  of  the  future,  anxious  to  give 
their  children  better  privileges  than  they  themselves  had, 
and  it  would  seem  as  if  the  masses  of  men  are  educated  by 
nothing  so  much,  at  least  by  nothing  more,  as  and  than  by 
the  ownership  of  land,  wherever  such  tenure  is  possible  and 
easy  to  the  masses;  and  (3)  the  outward  testimony  is 
abundant  from  many  lands,  that  the  peasant  proprietor  is 
a  happier  and  more  virtuous  man,  a  more  productive  and 
progressive  one,  than  the  mere  tenant  and  farm-laborer, 
while  there  is  much  perhaps  less  conclusive  testimony  that 
leased  lands  are  inferior  in  point  of  improvements  and 
productiveness  to  the  same  lands  when  cultivated  by  their 


158  PRINCIPLES   OF  POLITICAL   ECONOMY. 

owners  and  to  contiguous  or  at  least  similar  lands  still  so 
cultivated. 

It  is  a  cognate  point  yet  worthy  of  separate  mention, 
that  a  general  division  of  lands  into  farms  only  moderately 
large  and  approximately  equal  is  most  favorable  to  the 
largest  aggregate  production.  Such  a  division  takes  place 
of  itself  wherever  the  lands  are  held  in  fee  simple,  and  the 
cost  of  land-transfers  is  slight,  and  there  are  no  such 
obstacles  as  slavery  or  primogeniture,  as  has  happened 
practically  in  New  England  and  in  the  Middle  and  Western 
States,  and  as  is  now  happening  of  its  own  accord  more  or 
less  at  the  South.  The  Greek  writer,  Aristotle,  quoted 
some  centuries  before  Christ  from  "  the  African,"  probably 
some  Carthaginian  writer  on  agriculture,  the  now  familiar 
saying, "  the  best  manure  for  the  land  is  the  foot  of  the  owner" 
This  homely  word  long  attributed  to  Dr.  Franklin,  who 
stole  it  for  his  "  Poor  Richard's  Almanack "  more  than  a 
century  ago,  is  based  on  the  sound  principle,  that  personal 
supervision  to  be  most  effective  must  be  limited  in  its 
sphere,  and  that  the  best  agricultural  skill  becomes  weak 
when  it  attempts  to  exhibit  itself  on  too  broad  a  surface. 
Because  a  man  can  cultivate  100  acres  better  than  any  of 
his  neighbors,  it  does  not  prove  that  he  will  cultivate 
50  acres  additional  to  them  better  than  a  neighbor  of 
inferior  skill,  who  is  the  owner  of  these  50  and  no  more. 
When  the  freeholds  are  small  and  nearly  equal  a  wide 
competition  among  the  farmers  comes  naturally  into 
play,  success  is  seen  to  depend  upon  personal  efforts  of 
intelligence  and  will,  and  interest  and  hope  become  the 
motives  to  the  most  productive  cultivation.  There  is  a 
high  pleasure  in  possession  and  in  self-guided  exertion,  and 
an  impulse  is  broadly  felt  over  the  whole  region  to  get  as 
much  as  possible  out  of  the  land  and  at  the  same  time  to 
keep  good  and  ever  improve  its  condition.  To  protect  and 


MATERIAL  COMMODITIES.  159 

advance  his  own  interests,  to  attend  upon  the  seasons,  to 
watch  and  wait,  to  foresee  and  plan  and  labor,  —  all  this 
develops  the  farmer,  and  gives  him  energy  and  inde- 
pendence;  and  wherever  there  is  a  broad  basis  of  such 
independent  yeomanry  to  lean  back  upon,  when  heavy 
taxes  are  to  be  raised  and  strong  blows  of  battle  are  to  be 
struck,  the  national  safety  and  position  are  assured. 

6.  We  come  now  in  the  last  place  to  consider  the  Costs 
of  Production  of  material  commodities  of  all  sorts.  Valu- 
able patches  of  land,  all  prepared  for  Production  in  its 
several  kinds,  are  the  most  important  Commodities  in  the 
world,  and  the  largest  also  in  volume  of  Value.  What  did 
it  cost  "to  subdue  "  the  present  tillable  lands  of  this  coun- 
try ?  How  much  did  it  cost  to  get  ready  for  grazing  the 
broad  pastures  ?  To  make  accessible  the  forests  that  yield 
the  timber?  To  open  up  the  mines  also  and  bring  them 
into  "  touch  "  with  the  population  ?  These  questions  are 
of  great  consequence,  not  that  the  actual  past  cost  of  any 
class  of  these  more  permanent  "  commodities  "  in  the  com- 
mercial world  will  be  any  safe  guide  to  their  present  value, 
since  cheaper  and  cheaper  means  of  subduing  the  rugged 
forms  of  Nature  are  all  the  while  coming  into  play,  and  all 
things  that  did  cost  more  once  tend  pitilessly  to  fall  to 
what  similar  things  cost  now;  and  since  also  it  is  never 
"  efforts  "  alone  that  determine  the  value  of  anything,  but 
efforts  in  conjunction  with  the  "  desires  "  of  other  men. 
Still,  the  amount  of  efforts  expended  at  any  given  time 
upon  these  more  stable  commodities  to  make  them  produc- 
tive, that  is,  their  cost  of  production,  is  always  gauged  in 
general  by  an  estimate  of  what  the  "  desires  "  for  them  will 
be  when  completed ;  and  this  makes  their  cost  of  produc- 
tion a  sort  of  loose  measure  of  their  value  at  the  time. 
The  main  reason,  however,  why  the  cost  of  production  of 
these  primal  commodities,  namely,  valuable  land-patches, 


160  PRINCIPLES   OF   POLITICAL   ECONOMY. 

whatever  may  be  expected  to  be  produced  from  them  after- 
wards, is  so  important,  is,  that  as  a  general  rule,  the  less 
the  cost  of  any  commodity  meeting  a  universal  want  the 
wider  and  surer  is  its  market.  The  larger  the  circle  of  the 
buyers  of  anything  the  more  certain  its  sale ;  because,  the 
world  over,  the  men  of  small  incomes  are  manifold  larger 
in  number  than  the  men  of  large  incomes.  Society  is  like 
a  pyramid:  the  lowest  course  of  masonry  is  the  longest 
and  widest, — has  the  most  stones  or  bricks  in  it,  —  and 
ever  fewer  towards  the  top. 

If  we  reckon  valuable  lands  as  the  primary  commodities, 
then  the  secondary  commodities  will  be  of  two  classes, 
namely,  (1)  the  produce  of  these  valuable  lands,  whether 
animal  or  vegetable  or  mineral,  such  as  cattle  and  cereals 
and  coal ;  and  (2)  vendible  material  products  obtained  by 
human  efforts  from  non-valuable  land  and  sea,  such  as  furs 
and  fish.  This  division  of  material  commodities  into 
primary  and  secondary,  and  the  distinction  among  second- 
ary commodities  according  as  their  source  is  costly  and  cost- 
less, has  never  before  been  drawn  in  Political  Economy ; 
and  it  is  fully  believed,  that  the  thoughtful  reader  and 
student  will  pretty  soon  perceive  its  advantages  in  helping 
clear  up  one  of  the  most  confused  and  perplexing  sections 
of  our  Science,  namely,  that  which  relates  to  the  causes 
and  measures  of  Rent.  We  are  now  to  inquire  into  the 
elements  of  the  cost  of  production  of  each  of  these  three 
classes  of  commodities;  and  we  may  find  ourselves  sur- 
prised at  the  simplicity  and  certainty  of  these  elements. 

1.  We  will  now  look  into  the  Cost  of  Production  of 
valuable  land-patches  themselves,  the  first  and  most  impor- 
tant class  of  commodities.  Here,  as  everywhere  else  in 
Valuables,  we  discover  certain  free  gifts  of  Nature,  with- 
out whose  presence  indeed  the  value  could  never  come 
into  being,  but  which  are  not  constituents  of  the  value,  be- 


MATERIAL  COMMODITIES.  161 

cause  they  are  gratuitous,  given  of  God,  and  because  the 
natural  competition  among  buyers  and  sellers  inevitably 
flings  out  from  all  effect  on  value  of  the  otherwise  possible 
action  of  these  free  and  bountiful  gifts,  as  have  been  already 
fully  illustrated  in  chapter  first.  No  piece  of  land  ever 
yet  had  one  particle  of  Value  until  human  efforts  of  some 
sort  had  been  expended  on  it  or  in  some  connection  with 
it,  for  two  excellent  reasons,  first,  no  man  would  ever  even 
think  of  saying  to  another  in  reference  to  such  a  piece  of 
land  "  Give  me  something  for  it  and  I  will  pass  it  over  to 
you,"  and  second,  even  if  he  did  think  of  such  an  absurd- 
ity the  other  would  reply  "  Why  should  I  give  you  any- 
thing for  something  to  which  you  have  not  the  least  claim, 
especially  as  I  can  take  for  nothing  just  such  pieces  all 
around  here  ?  "  It  must  be  remembered,  not  only  that  God 
gave  the  whole  earth  to  all  mankind  without  distinction, 
but  also  that  his  bountiful  hand  scattered  all  peculiar  kinds 
of  patches  in  great  number  upon  each  of  the  Continents. 
There  is  a  plenty  of  Utility  (gratuitous)  in  land-parcels 
just  as  God  made  them,  but  no  possibility  of  Value  (oner- 
ous) till  other  hands  than  His  have  touched  and  benefited 
them. 

What,  then,  are  the  onerous  elements  that  enter  into  the 
value  of  land-parcels  and  constitute  their  Cost  of  Produc- 
tion ?  There  are  only  two  such  elements,  namely, .  Cost  of 
Labor  and  Cost  of  Capital.  To  find  out  exactly  what 
"  Labor  "is,  and  what  there  is  in  it  entitling  and  assuring 
its  reward  in  "  Wages,"  will  be  the  task  and  perhaps  also 
the  pleasure  of  the  next  chapter;  but  it  will  suffice  for 
the  present  discussion  to  say,  that  Labor  is  human  exertion 
put  forth  for  the  sake  of  a  commercial  return.  Lands  can 
by  no  possibility  be  brought  out  of  a  state  of  nature  into  a 
state  of  value  without  the  expenditure  of  Labor  ;  and  the 
actual  or  estimated  cost  of  this  labor,  accordingly,  is  the 


162  PRINCIPLES   OF   POLITICAL  ECONOMY. 

first  constituent  of  the  Cost  of  Production  of  valuable 
lands  considered  as  Commodities.  Labor,  however,  can 
not  apply  itself  to  free  lands  in  order  to  make  them  val- 
uable without  the  co-operation  of  another  onerous  element, 
namely,  Capital,  in  some  of  its  many  forms.  For  example, 
if  forest  lands  are  to  be  made  tillable,  the  trees  must  first 
be  cut  down,  and  this  will  require  besides  the  muscular 
exertion  of  the  laborer  something  in  the  way  of  an  axe, 
which  is  capital,  the  result  of  previous  labor  reserved  to 
assist  in  further  production :  if  native  prairie  is  to  be  sub- 
dued to  a  valuable  commodity,  something  of  the  nature  of 
a  plough  must  be  employed  in  the  process,  and  horses  or  a 
steam  engine  to  propel  it,  and  a  plough  and  horses  are 
capital,  and  still  require  fresh  labor  to  make  them  useful  in 
production.  But  capital  always  costs  something;  and, 
therefore,  the  cost  of  the  Capital  enters  in  as  a  second  con- 
stituent into  the  cost  of  production  of  Land-Commodities. 
But  these  two  costs  are  all.  We  shall  search  in  vain  for 
any  other  onerous  element  in  the  cost  of  producing  com- 
modities. There  are  two  variables  only  in  the  Cost  of  Pro- 
duction, which  itself  is  the  sum  of  the  two  subordinate  costs, 
(a)  And  now  let  us  analyze  first  the  Cost  of  Labor  in 
this  connection,  and  then  second  the  Cost  of  Capital,  and 
we  shall  soon  reach  radical  and  unchangeable  ground,  and 
find  in  the  sum  of  these  two  an  aggregate  Cost  of  Produc- 
tion, and  also  all  of  the  variables  that  can  ever  enter  into 
such  Cost.  It  is  plain  to  reason,  that  only  by  Labor  non- 
valuable  land-pieces  ever  did  or  ever  can  become  valuable. 
Captain  John  Smith  understood  this  in  1607  at  James- 
town as  well  as  anybody  understands  it  now :  there  were 
48  gentlemen,  and  only  12  tillers  of  the  soil,  among  the  105 
colonists,  who  originally  landed  there :  "  nothing  is  to  be  ex- 
pected hence"  he  wrote  of  the  new  country,  but  by  "  labor :  " 
new  supplies  of  laborers,  aided  by  a  Avise  allotment  of  land- 


MATERIAL  COMMODITIES.  163 

parcels  to  each  colonist,  secured  after  five  years  of  struggle 
the  lasting  fortunes  of  Virginia:  "men  fell  to  building 
houses  and  planting  corn  " :  the  very  streets  of  Jamestown 
were  sown  with  tobacco ;  and  in  fifteen  years  the  colony 
numbered  5000  souls. 

Now  the  cost  of  Labor  is  analyzable  into  three  variables 
only,  namely,  (1)  the  efficiency  of  the  labor ;  (2)  the  rate 
of  nominal  wages  paid ;  (3)  the  cost  to  the  employer  of 
that  valuable,  in  which  the  wages  are  paid.  Let  us  see : 
what  an  employer  wants  is  to  get  things  done;  conse- 
quently, if  an  employer  hire  two  men  to  work  for  him  at 
the  same  rate  of  wages,  and  if  one  be  twice  as  efficient  a 
laborer  as  the  other,  the  cost  of  the  labor  of  the  first  is  only 
one  half  the  cost  of  the  labor  of  the  second :  therefore,  a 
high  rate  of  wages  does  not  mean  a  high  cost  of  labor  when- 
ever and  wherever  the  laborers  are  very  efficient.  As  a 
rule,  it  is  found,  that  the  cost  of  labor  in  reference  to  a 
given  product  is  the  least  in  those  countries,  like  the  United 
States  and  Great  Britain,  in  which  the  rates  of  nominal 
wages  are  the  highest ;  because,  it  is  found  also,  that  a  high 
efficiency  of  laborers  accompanies  both  as  a  cause  and  as  an 
effect  high  rates  of  wages. 

Secondly,  there  are  striking  differences  in  the  rates  of 
nominal  wages  paid  for  a  day's  work  in  the  same  general 
employment  in  different  parts  of  the  same  country,  and 
especially  in  different  countries.  The  agricultural  laborer 
in  the  west  of  England,  say  in  Wiltshire,  gets  about 
10s.  per  week,  while  in  the  north  of  England,  say  Notting- 
hamshire, laborers  at  the  same  general  work  get  about 
16s.  per  week.  Walker  in  his  Wages-Question  gathers 
from  the  best  authorities  many  such  statements  as 
these:  "On  the  Grand  Trunk  Railway  in  Canada  the 
French-Canadian  laborers  received  3s.  Qd.  a  day,  while  the 
Englishmen  received  from  5s.  to  6s.  a  day,  but  it  was  found 


164  PRINCIPLES   OF   POLITICAL   ECONOMY. 

that  the  English  did  the  greatest  amount  of  work  for  the 
money."  "  In  the  quarry  at  Bonnieres,  in  which  Frenchmen, 
Irishmen,  and  Englishmen  were  employed  side  by  side,  the 
Frenchmen  received  3,  the  Irishmen  4,  and  the  Englishmen  6, 
francs  a  day;  and  at  those  different  rates  the  Englishman 
was  found  to  be  the  most  advantageous  workman  of  the 
three."  "  The  statistics  of  the  iron  industry  in  France 
show,  that  on  the  average  42  men  are  employed  to  do  the 
same  work  in  smelting  pig  iron  as  is  done  by  25  men  on 
the  Tees."  "In  India,  although  the  cost  of  daily  labor 
ranges  from  4%d.  to  Qd.  a  day,  mile  for  mile,  the  cost  of 
railway  work  is  about  the  same  as  in  England."  Thus  it 
is  plain,  that  a  high  rate  of  wages  does  not  import  a 
high  cost  of  labor,  but  rather  the  reverse.  A  vast  mass 
of  current  fallacies  are  disposed  of  in  a  moment  by  this 
truth  seen  in  its  grounds.  The  United  States  have  shown 
in  the  past  the  highest  rates  of  nominal  wages  in  the  world, 
and  at  the  same  time  have  shown  the  lowest  costs  of  labor 
to  the  employers,  because  as  a  rule  the  laborers  here  have 
been  more  efficient  than  elsewhere.  England  has  the 
highest  rates  of  wages  and  the  lowest  costs  of  labor  in 
Europe  for  the  same  reason.  The  degree  of  efficiency 
shown  by  different  laborers  is  the  second  variable  in  a  cost 
of  labor. 

Thirdly,  if  that  valuable,  whether  money  or  other,  in 
which  wages  are  paid,  varies  in  cost  to  the  employer,  then 
the  cost  of  the  labor  paid  for  by  that  valuable,  efficiency  of 
the  laborers,  and  nominal  rate  of  pay  remaining  the  same, 
will  of  course  be  varied  thereby.  We  shall  learn  hereafter 
in  the  chapter  under  that  title,  that  the  value  of  "  Money" 
is  by  no  means  invariable  even  in  one  country,  just  as  we 
have  already  learned  the  variable  nature  of  all  other 
values;  and,  too,  wages  are  not  always  paid  in  money, 
though  they  are  commonly  reckoned  in  the  terms  of  money ; 


MATERIAL   COMMODITIES.  165 

and  accordingly,  the  third  and  last  variable  in  a  cost  of 
labor  is  the  cost  to  the  employer  of  that  valuable,  whatever 
it  be,  in  which  the  wages  are  paid.  Assuming,  as  we  may, 
that  given  wages  are  paid  in  money,  then  any  country  that 
has  for  any  reason  a  more  abundant  money  than  another 
may  clearly  pay  higher  rates  of  nominal  wages  than  that 
other  without  making  its  costs  of  labor  any  higher  than  in 
that.  The  United  States,  for  example,  has  usually  had  a 
very  abundant  money  (not  always  of  the  best  kind),  which 
of  course  has  tended  to  make  higher  the  current  prices  of 
all  commodities,  and  this  has  enabled  capitalist-employers 
to  pay  higher  nominal  rates  of  wages,  without  at  all 
enhancing  relatively  the  costs  of  labor,  and  also  without 
really  benefiting  the  laborers. 

(b)  We  will  now  analyze  second  the  Cost  of  Capital  in 
this  connection,  as  the  only  other  element  of  cost  in 
the  Cost  of  Production  of  Commodities  in  general,  and 
particularly  now  in  the  cost  of  making  worthless  land-pieces 
valuable  so  as  to  be  used  in  further  production.  Here  too 
we  find  three  variables,  no  one  of  which  can  be  safely 
neglected  any  more  than  the  other  three  in  the  reckoning 
that  has  for  its  object  a  prospective  cost  of  production. 
These  are,  first,  the  current  rate  per  centum;  second, 
the  time  for  which  the  capital  is  advanced;  and  third, 
the  liability  of  that  form  of  capital  to  slow  or  rapid 
wearing  out.  For  instance,  under  the  first  variable,  the 
rate  per  centum  of  capital,  if  the  rate  at  Amsterdam 
be  3  and  that  at  New  York  be  7,  if  the  cost  of  labor  be 
equal  in  the  two  cities,  if  the  time  of  advance  be  one  year, 
and  if  there  be  no  liability  of  the  capital  to  wear  out ;  then 
any  commodity  made  at  Amsterdam  with  an  outlay  of  $100 
may  be  sold  at  a  profit  for  $103,  while  a  similar  commodity 
made  at  New  York  with  the  same  outlay  cannot  be  sold 
for  less  than  $107.  All  other  things  being  equal,  a  low 


166  PRINCIPLES    OF    POLITICAL   ECONOMY. 

rate  per  centum  of  capital  in  any  country  gives  that  country 
an  advantage  in  the  markets  of  the  world  for  selling- 
its  commodities  over  other  countries  offering  similar 
commodities  where  the  rate  is  higher,  because  its  cost  of 
their  production  is  less.  Of  course  also  such  a  country 
can  subjugate  its  wild  lands  and  make  them  valuable  at 
less  cost  than  the  other  countries. 

To  illustrate  the  operation  of  the  second  variable,  the 
time  for  which  the  capital  is  advanced,  let  the  same 
suppositions  be  continued,  except  that  the  time  of  advance 
at  New  York  be  extended  to  four  years.  Then  the 
commodity  may  be  sold  at  and  from  Amsterdam,  as  before, 
at  $103,  but  the  corresponding  commodity  at  and  from 
New  York  for  not  less  than  $131,  so  far  as  mere  cost 
of  production  determines  the  prices.  This  point  is  also 
well  shown  up  in  the  case -of  wine,  which,  to  reach  its 
perfection,  requires  to  be  kept  a  number  of  years,  for,  if  it 
be  genuine  and  ripe,  its  cost  of  production  has  been  by  so 
much  enhanced  by  its  delay  in  reaching  the  market.  If 
the  time  of  advance  be  long,  and  the  rate  per  centum  high 
at  the  same  time,  the  cost  of  capital  from  the  two  causes 
combined  multiplies  the  cost  of  the  product;  and  conse- 
quently, only  countries  in  which  the  rates  are  low  can 
successfully  engage  in  enterprises  requiring  a  large  capital 
to  be  invested  for  long  periods  before  returns  are  realized. 
One  million  of  Dutch  capital  at  3%  a  year,  expecting  to 
realize  returns  only  after  20  years,  may  be  remunerated  by 
products  selling  for  $1,806,111;  but  American  capital 
under  like  circumstances,  except  that  the  rate  here  is  7%, 
must  have  a  return  of  $3,869,685,  or  lose  by  the  operation. 

To  illustrate  the  action  of  the  third  and  last  variable,  we 
must  observe,  that  all  forms  of  capital  wear  out,  but  some 
forms  much  faster  than  others,  and  that  this  makes  a  dif- 
ference in  the  sinking-funds  that  must  be  reserved  out  of 


MATERIAL   COMMODITIES.  167 

the  gross  profits  of  the  capital  in  order  to  replace  the  prin- 
cipal whole.  This  difference  will  at  once  affect  the  cost 
of  capital,  and  so  of  production,  and  so  indirectly  the 
ultimate  value  of  the  product.  Suppose  there  are  two 
commodities,  which  we  will  call  A  and  B,  produced  in 
two  different  establishments,  in  each  of  which  is  invested 
a  capital  of  $11,000,  in  one  of  which  is  used  a  machine  that 
costs  $1000  and  is  wholly  worn  out  by  one  year's  use,  and 
in  the  other  a  machine  costing  the  same  sum,  which  will 
last,  however,  for  ten  years.  Suppose  further,  that  the  rate 
per  centum  of  profit  be  10,  and  the  time  consumed  in  com- 
pleting each  of  the  two  products  be  one  year.  Now  there 
is  a  marked  difference  in  the  Cost  of  Capital  in  the  two 
establishments,  and  this  difference  will  indirectly  but 
immediately  appear  in  tne  Value  of  the  respective  prod- 
ucts. For,  to  A  must  be  charged  not  only  11100,  the 
interest  on  the  whole  capital  at  the  current  rate,  but  also 
another  $1000,  wherewith  to  replace  the  machine  already 
worn  out  by  a  single  year's  use.  A,  accordingly,  cannot 
be  sold  without  loss  for  less  than  $2100.  B,  however, 
will  cost  less  and  can  be  sold  for  less  at  the  usual  profit. 
Because,  to  it  must  be  charged,  as  before,  $1100,  current 
rate  of  profit  on  the  capital  invested,  and  only  $100  (really 
less  than  that  for  an  obvious  reason)  to  replace  the  durable 
machine  after  ten  years'  use.  The  capitalist,  therefore, 
can  sell  B  for  $1200,  and  make  something  over  the  cur- 
rent rate  of  profit. 

Since  the  cost  of  capital  invariably  resolves  itself  into 
these  three  variables,  every  capitalist  in  order  to  become 
successful  as  such  must  give  strict  attention  to  all  three  of 
these  points.  To  any  one  who  projects  the  making  of 
valueless  into  valuable  land,  or  valuable  into  more  valu- 
able land,  by  the  expenditure  of  capital  upon  them  for 
that  purpose,  it  becomes  a  matter  of  prime  importance  for 


168  PRINCIPLES    OF   POLITICAL   ECONOMY. 

him  to  inquire  how  long  a  time  the  whole  process  will 
take,  how  much  he  must  allow  per  annum  for  the  cost  of 
all  the  implements  employed,  and  especially  how  complete 
in  action  and  duration  are  these  costly  implements.  The 
durability  of  machinery,  whatever  the  name  it  bear  and 
whatsoever  the  work,  it  do,  is  at  once  the  most  significant 
and  the  most  neglected  point  in  the  actual  and  prospective 
Production  of  our  time  and  country ;  and  no  condemnation 
can  be  too  severe  upon  a  policy  of  public  law,  such  as  now 
prevails,  whose  whole  tendency  and  actual  effect  is  to 
worsen  the  quality  and  lessen  the  durability  of  all  com- 
mercial implements  whatsoever,  from  the  needle  to  the 
locomotive.  The  same  abominable  public  policy  increases 
the  cost  and  decreases  the  durability  of  all  agricultural 
implements,  like  the  axe  and  the  plough,  designed  and 
adapted  to  transform  valueless  and  non-productive  into 
valuable  and  food-producing  lands. 

2.  Now,  having  fully  seen  the  elements  of  the  cost  of  re- 
ducing land  itself  from  a  natural  into  a  valuable  and  pro- 
ductive form,  what  next  are  the  elements  of  the  cost  of 
production  of  those  material  commodities  produced  for 
sale  by  the  aid  of  these  subdued  and  now  productive  lands  ? 
Commodities  so  produced  constitute  the  second  class  in 
the  law  of  their  Cost  of  Production.  And  a  vastly  im- 
portant class  it  is.  The  food  of  the  world,  so  far  as  that 
food  is  purchased  as  the  product,  whether  animal  or  vege- 
table, of  valuable  lands ;  the  fuel  of  the  world,  so  far  as 
that  fuel  is  bought  from  owned  and  accessible  forests  and 
mines ;  the  clothing  of  the  world,  so  far  as  the  fabrics 
come  from  the  cultivated  cotton  and  flax  and  wool  and 
skins  offered  for  sale ;  the  shelter  of  the  world,  so  far  as 
the  wood  and  brick  and  stones  and  lime  are  drawn  from 
valuable  lands  and  quarries  ;  and  the  warehouses  and  the 
temples  and  the  theatres  of  the  world,  built,  as  they  are, 


MATERIAL  COMMODITIES.  169 

out  of  the  products  of  costly  and  rentful  lands  :  these  all, 
and  many  more  like  these,  constitute  a  class  of  commodi- 
ties immense  in  their  volume,  whose  cost  of  production 
has  in  it  an  element  peculiar  and  additional  to  that  of  the 
first  class  already  analyzed,  and  to  that  of  the  third  class 
also  soon  to  be  considered. 

This  peculiar  and  additional  element  in  the  cost  of  pro- 
duction of  these  things,  class  second  of  commodities,  is 
called  RENT.  Interminable  have  been  and  still  are,  espe- 
cially in  the  British  Islands,  the  definitions  and  discussions 
upon  Rent :  they  have  boxed  the  compass  of  economical 
nomenclature :  they  have  run  up  and  down  the  entire 
gamut  of  possible  expression  on  such  a  theme.  David 
Ricardo,  the  Anglo-Jewish  Banker,  formerly  announced, 
near  the  beginning  of  this  century,  that  "  Rent  is  that  por- 
tion of  the  produce  of  the  earth,  which  is  paid  to  the  land- 
lord for  the  use  of  the  original  and  indestructible  powers  of 
the  soil."  Two  objections  lie  with  fatal  weight  against  this 
definition  and  all  that  is  involved  in  it :  first,  there  are  no 
"indestructible  powers  of  the  soil,"  either  "original"  or 
acquired,  since  the  universal  verdict  of  all  agriculture  has 
been  and  still  is,  that  the  "  powers  "  of  all  soils  are  contin- 
ually wearing  out,  and  need  to  be  constantly  renovated  by 
fertilizers  and  manipulations  of  all  sorts ;  and  second,  even 
if  there  were  such  "  original  and  indestructible  powers,"  it 
would  be  impossible  to  separate  them  from  the  additional 
"  powers  "  acquired  by  means  of  the  capital  expended  to 
bring  that  land  from  the  state  of  nature  to  its  present 
state,  and  the  landlord  has  had  nothing  to  do  with  any 
"  powers  "  of  the  land  except  those  conferred  by  his  own 
labor  and  capital  upon  it,  and  can  by  no  possibility  put 
himself  into  a  position  where  he  can  enforce  any  claim  of 
his  own  for  a  return  from  any  "  original  powers  "  of  any 
land-parcel  whatever.  The  simple  truth  is,  and  it  illu- 


170  PRINCIPLES   OF  POLITICAL  ECONOMY. 

mines  the  whole  subject  of  agriculture  and  its  products, 
that  the  value  of  land-parcels  and  also  the  value  of  the 
transient  use  of  them,  or  Rent,  hang  wholly  on  the  onerous 
human  efforts  involved  in  them,  and  not  at  all"  on  original 
and  gratuitous  utilities.  Science  has  only  to  unfold  the 
plan  of  God  and  its  actual  and  beneficent  workings.  "In 
the  sweat  of  thy  face  shalt  thou  eat  bread."  All  that  God 
furnishes  to  men  in  order  to  get  a  living  and  in  order  even 
to  get  rich  is  Opportunity.  The  opportunity  is  ample. 
The  call  to  a  partnership  in  Effort  as  between  God  and 
men  is  loud  and  constant.  The  world  with  all  its  powers, 
free  lands  with  all  their  utilities,  the  change  of  seasons, 
the  blessed  sun  and  the  blessed  dew  and  rain,  the  constant 
disintegration  of  rocks  beneath  the  soil  and  the  gradual 
clothing  with  lichens  and  moss  and  verdure  of  the  rocks 
above  in  preparation  for  a  new  soil,  and  the  wonderful 
chemistry  of  the  vast  laboratory  of  Nature,  all  work  night 
and  day  without  fee  or  reward  in  the  service  of  mankind. 
But  men  themselves  must  not  intermit  their  labor.  All 
values  are  of  their  creation  and  maintenance.  If  they 
cease  or  relax  their  labor  upon  land-pieces  so  only  made 
valuable  and  rentful,  then  will  the  value  and  the  rent  be- 
gin to  slip  away  inexorably,  and  no  prayers  and  no  regrets 
will  avail  to  call  them  back. 

Now,  then,  since  commodities  of  the  second  class  in  the 
cost  of  their  production  must  respond  not  only  to  the  cur- 
rent cost  of  Labor  and  Capital  in  bringing  them  to  market, 
but  also  something  additional  in  the  way  of  Rent  to  the 
past  cost  of  the  implement,  the  land-parcel,  without  whose 
contributing  agency  present  results  could  not  be  gained; 
Rent  is  the  Rendering  for  the  present  use  of  a  Valuable 
made  such  by  past  Labor  and  Capital.  Land-parcels  leased 
for  agriculture ;  mines  and  the  access  to  them  leased  for 
the  production  of  metals  and  minerals ;  and  forests  whose 


MATERIAL  COMMODITIES.  171 

growth  has  been  permitted  by  the  past  abstinence  of  their 
owners ;  all  properly  yield  a  rent ;  because  these  forms  of 
capital,  whose  existence  is  due  to  past  labor  and  capital, 
are  present  contributors  to  products,  whose  sale  must  com- 
pensate not  only  present  labor  and  the  use  of  current 
capital,  but  also  the  use  of  these  more  permanent  forms  of 
capital  long  ago  created. 

A  competent  authority  estimated  in  1881,  that  the  land- 
parcels  of  the  United  Kingdom  of  Great  Britain  were 
worth  <£  3,000,000,000;  and  there  were  at  the  same  time 
6,000,000  of  inhabited  houses,  excluding  factories  and 
business  premises  and  tenements  renting  for  £20  and 
under.  Most  of  these  lands  and  houses  are  rented  by 
their  owners  to  the  actual  occupiers  on  the  just  principle 
explained  above,  inasmuch  as  the  lease-system  is  the  pre- 
vailing one  in  that  country.  According  to  the  Census  of 
1880,  there  were  4,008,907  so-called  farms  in  the  United 
States  in  that  year.  Most  of  these  are  held  in  fee  simple, 
and  are  tilled  by  their  owners ;  but  just  so  far  as  land- 
patches  and  forests  and  mines  are  leased  in  this  country, 
their  products  must  provide  in  their  price  of  sale  for  cur- 
rent rents,  as  well  as  current  costs  of  present  produc- 
tion. This  is  just  as  it  should  be,  and  just  as  it  must  be, 
if  Capital  is  to  take  this  form  of  assisting  the  processes  of 
future  production. 

But  this  form  of  Capital,  as  well  as  all  other  forms  of 
the  same,  is  perpetually  wearing  out,  that  is  to  say,  is 
gradually  losing  its  power  to  contribute  as  at  first  to  the 
present  and  future  processes  of  production.  This  loss  is 
in  the  very  nature  of  things,  —  in  the  very  nature  of  all 
Capital.  The  great  Father  never  intended  that  His  chil- 
dren should  cease  from  work.  He  has  ordered  all  things 
so,  that  they  cannot  cease  from  work,  and  continue  to  live 
in  any  comfort  and  progress.  Value,  as  we  have  already 


172  PBINCIPLES   OF   POLITICAL  ECONOMY. 

thoroughly  learned,  is  not  a  quality  that  can  be  put  into 
anything  to  stay  there :  it  is  a  recurring  relation  of  mutual 
services  between  man  and  man ;  and  each  of  these  services 
of  the  three  kinds  involves  recurring  Efforts.  Capital  is 
a  form  of  Value;  and,  consequently,  it  cannot  possibly 
take  on  a  shape  not  subject  to  the  law  of  diminishing 
returns.  This  is  deductive  proof.  And  precisely  the 
same  result  is  reached  by  Induction.  Men  have  noticed 
and  recorded  the  fact  at  all  times,  and  have  made  pro- 
vision for  it  in  their  pecuniary  calculations,  that  tools  and 
machinery  need  to  be  repaired  and  then  replaced,  that  the 
current  interest  on  moneyed  capital  tends  to  decline  from 
generation  to  generation  in  all  progressive  countries,  and 
also  that  lands  and  other  forms  of  real  estate  so  lose  their 
productive  and  rental  power  unless  cared  for  in  renovation 
that  men  migrate  and  emigrate  in  consequence. 

How  much  Rent  shall  the  tenant  pay  to  the  landlord  for 
the  present  use  of  the  latter's  old  lands?  Or  in  other 
words,  how  much  shall  be  added  to  the  going  price  of  the 
product  on  account  of  the  diminishing  return  due  for  the 
use  of  the  old  landed  capital  ?  This  is  a  hard  question  to 
answer :  probably  the  hardest  question  that  is  ever  asked 
in  practical  Economics.  Mr,  Gladstone  wrestled  with  it 
as  complicated  with  a  larger  political  question  in  passing 
the  Irish  Land  Bill  of  1881.  Another  honest  athlete,  Mr. 
Parnell,  wrestled  with  it  upon  the  same  parliamentary 
arena.  Scores  of  able  and  practical  statesmen  in  Great 
Britain,  and  elsewhere,  have  struggled  to  reach  a  practical 
answer  to  this  question ;  and  scores  of  able  and  theoretical 
economists  in  all  countries  have  striven  to  reach  a  theoret- 
ical answer  to  it.  Most  of  these  answers  have  been  inhar- 
monious, and  many  of  them  contradictory,  with  each  other. 
The  Land  Bill  of  1881  created  a  parliamentary  Commis- 
sion, whose  duty  and  authority  it  was,  to  visit  the  Irish 


MATERIAL   COMMODITIES.  173 

counties  in  person,  to  gain  information  in  detail,  to  take 
sworn  testimony  of  all  the  parties  concerned,  and  then  to 
lift  or  lower  rents  according  to  their  discretion.  The 
discontent  of  the  Irish  tenants  in  general  was  considerably 
mollified  by  the  action  of  this  Commission  ;  while  the 
debates  and  wrangles  of  the  parliamentary  session  of  1889, 
and  the  persistent  agitations  for  Home  Rule  (an  agitation 
at  once  political  and  economical),  show  that  the  results  of 
the  work  of  that  Commission  were  not  wholly  satisfactory, 
(a)  It  is  easy  enough  to  see  why  the  solution  of  this 
general  problem  is  so  extremely  difficult.  The  new  is 
mixed  in  with  the  old.  The  result  of  the  old  labor  and 
capital  is  a  productive  piece  of  land;  the  current  labor 
and  capital  is  expended  upon  the  same  piece  to  make  it 
more  productive ;  the  same  sort  of  thing  is  done  now  that 
was  done  then,  and  the  results  of  the  two  are  now  thor- 
oughly intermixed;  there  were  original  free  utilities  in 
soil  and  growths  and  deposits,  but  these  had  and  have  no 
value  and  can  never  yield  rent;  the  old  labor  and  capital 
improved  the  soil  by  clearing  and  drainage  and  fertilizers, 
and  made  the  growths  and  deposits  more  valuable  and 
accessible,  so  that  even  the  old  onerous  was  more  or  less 
transformed  into  the  original  gratuitous ;  and  now  the 
new  onerous,  the  fresh  cultivation  and  fertilization  and 
betterments  generally,  in  soils  and  roads  and  buildings, 
are  inextricably .  commingled  with  former  betterments  of 
the  same  general  kind  and  with  the  original  free  gifts  of 
Nature.  No  wonder  the  Commission  of  1881  found  diffi- 
culty in  determining  what  was  what  and  which  was  which ! 
No  wonder  that  Irish  tenants  on  long  leases  quarrel  with 
their  landlords  about  the  betterments,  how  much  is  new, 
how  much  is  old !  It  is  clear,  that  when  the  lease  is  ended, 
the  landlord  ought  to  compensate  the  tenant  for  all  that 
portion  of  the  latter's  betterments,  which  is  not  already 


174  PRINCIPLES   OF  POLITICAL  ECONOMY. 

worn  out ;  it  is  equally  clear,  that  the  tenant  ought  to  be 
willing  to  pay  a  fair  rent  for  the  use  of  the  unexpended 
betterments  of  the  landlord  and  his  predecessors ;  while 
there  is  room  and  verge  enough  for  endless  disputes  be- 
tween them  as  to  the  respective  amounts  of  these,  and  con- 
sequently as  to  the  amounts  of  rent  and  of  its  remissions. 

These  difficulties  and  intricacies  do  not  belong  to  the 
principles  of  the  Science  of  buying  and  selling,  which  are 
in  the  main  clear  and  certain  in  their  action,  but  are 
incidents  of  determining  in  certain  cases  what  that  is, 
which  is  bought  arid  sold.  Parties  in  interest  in  all  kinds 
of  buying  and  selling  are  sometimes  compelled  to  go  to 
the  courts  in  order  to  have  the  Law  decide  what  their 
respective  rights  are  as  buyers  and  sellers ;  but  this  is  no 
fault  of  Political  Economy  as  a  science,  or  of  trading  as 
an  art;  two  men  in  all  cases  make  their  own  bargain, 
according  to  their  own  estimate  of  the  respective  render- 
ing and  receiving  of  each ;  if  the  uncertainties  of  lan- 
guage, the  misconception  on  the  part  of  one  or  both  of  the 
terms  agreed  upon,  and  the  misapprehension  of  some  of 
the  circumstances  of  the  case,  breed  confusion  and  lit- 
igation, all  this  cannot  be  justly  charged  to  the  science  of 
Political  Economy. 

Nevertheless,  it  is  into  these  incidental  intricacies  and 
uncertainties,  that  Henry  George's  now  famous  theory  of 
landed  rents  and  the  taxation  of  them,  strikes  its  roots. 
Instead  of  building  his  structure  upon  firm  and  open 
ground,  so  that  thoughtful  men  can  see  that  his  basis  is 
solid  and  scientific,  Mr.  George  dashes  at  once  into  a 
thicket  and  lays  his  foundations  with  quickness  and  assur- 
ance where  all  is  dark  and  doubtful,  or  at  best  where  all  is 
rather  incidental  than  fundamental  and  demonstrable,  and 
pretty  soon  displays  a  superstructure  that  appears  attrac- 
tive both  without  and  within,  through  whose  airy  halls 


MATERIAL   COMMODITIES.  175 

he  knows  how  to  conduct  to  their  delight  the  credulous 
and  discontented,  and  on  whose  walls  hang  plausible  pic- 
tures calculated  to  invite  and  hold  the  attention  of  the 
masses.  Let  the  perfect  integrity  and  rhetorical  ability  of 
Mr.  George  be  freely  conceded ;  let  it  be  freely  conceded 
also,  that  he  teaches  in  his  books  and  lectures  a  great  deal 
of  vastly  important  industrial  truth  in  a  popular  way  so  as 
to  accomplish  great  good,  such,  for  example,  as  the  imper- 
ative need  of  greater  simplicity  in  taxation,  and  the  indis- 
putable right  of  the  people  to  their  liberty  in  buying  and 
selling;  yet  it  must  at  the  same  time  be  owned,  that  he 
has  never  yet  found  out  exactly  what  Value  is  in  general, 
consequently  what  are  the  causes  of  value  in  lands,  and 
what  are  the  nature  and  grounds  of  Rent.  Something 
more  of  patient  and  radical  analysis  at  the  outset,  and  of 
logical  and  scientific  unfolding  afterwards,  would  have 
made  Henry  George  one  of  the  chief  benefactors  of  his 
age. 

(b)  It  is  also  very  easy  to  see,  that  the  current  price  of 
produce,  that  is,  what  is  gotten  in  return  for  the  sale  of 
^^hat  is  gotten  out  of  the  land-parcels,  must  have  a  domi- 
nant influence  upon  what  can  be  paid  as  rent  for  the  use  of 
the  parcels.  Unless  the  return  from  the  produce  be  suf- 
ficient to  reward  at  current  rates  the  present  labor  and 
capital  employed  upon  the  parcel,  the  parcel  will  not  con- 
tinue to  be  cultivated  at  all,  otherwise  men  would  act 
without  a  motive  for  action,  which  they  never  do  ;  unless, 
therefore,  the  price  of  produce  be  more  than  high  enough 
to  repay  current  wages  and  profits,  there  will  be  nothing 
left  for  Rent ;  and,  consequently,  the  amount  of  the  rent 
that  can  continue  to  be  paid  for  lands  will  be  the  difference 
between  the  going  price  of  what  is  produced  from  them  and 
the  current  expenses  of  cultivating  them.  Here,  as  every- 
where else  within  the  domain  of  Exchange,  Competition 


176  PRINCIPLES   OF   POLITICAL   ECONOMY. 

exerts  its  beneficent  action.  If  one  dealer,  or  ten,  endeav- 
ors to  put  a  price  upon  the  produce  more  than  enough  to 
pay  current  wages  and  profits  with  a  fair  margin  for  the 
diminishing  rate  of  rent,  there  are  a  plenty  of  others, 
dealers  in  the  same  grade  of  produce,  who  will  be  con~ 
tent  with  a  fair  return  for  present  and  past  expenditure  of 
labor  and  capital ;  and  the  action  of  these  will  effectually 
debar  the  others  from  exorbitant  rates.  The  price  of  prod- 
uce, accordingly,  under  free  competition,  is  the  divinely 
appointed  regulator  of  landed  rents.  It  regulates  also, 
though  more  indirectly,  the  current  rates  of  wages  and 
profits  in  agriculture. 

Very  different  from  this  is  Ricardo's  doctrine  of  Rent. 
He  makes  everything  turn  on  the  Cost  of  Production  of 
the  Produce,  which  is  Effort,  ignoring  the  ever-varying 
demands  for  the  produce,  which  is  Desire.  His  doctrine, 
too  famous  and  too  long  received  for  us  to  pass  by  in  this 
connection,  though  now  superannuated,  was  for  substance, 
this :  there  are  some  lands  in  every  country  whose  produce 
just  repays  the  expenses  of  cultivation,  and  consequently 
yields  no  margin  for  rent ;  and  the  cost  of  production  on 
these  rentless  and  poorest  lands  under  cultivation,  will 
determine  the  price  of  the  produce ;  and  as  there  can  be 
but  one  price  in  the  same  market,  the  produce  raised  on 
more  fertile  land  will  be  sold  for  the  same  price,  and  this 
price,  besides  paying  the  cost  of  cultivation,  will  yield  a 
rent  rising  higher  according  as  the  land  is  more  fertile ; 
so  that  the  rent  paid  on  any  land  is  always  a  measure  of 
the  excess  of  productiveness  of  that  land  over  the  least 
productive  land  under  paying  cultivation ;  and  therefore, 
an  increased  demand  for  food  in  consequence  of  increased 
population,  and  the  higher  price  resulting,  will  force  cul- 
tivation down  upon  still  poorer  soils,  or  compel  a  higher 
culture  for  less  remunerative  returns  on  the  old  soils, 


MATERIAL   COMMODITIES.  177 

according  to  the  law  of  diminishing  returns,  which  in 
either  case  will  raise  the  rents  on  all  the  soils  above  that 
grade  that  just  repays  the  expenses  of  cultivation ;  so  that 
it  is  the  sole  interest  of  landlords,  as  such,  that  population 
should  be  dense  and  food  high,  their  interest  being  directly 
antagonistic  to  that  of  the  other  classes  of  the  community, 
(c)  Finally,  in  this  connection,  it  is  easy  enough  to  see, 
what  were  the  motives  on  the  part  of  the  landlords,  and 
what  were  the  results  on  the  part  of  the  masses,  of  Great 
Britain,  in  putting  on  and  keeping  on  the  infamous  Corn 
Laws,  so-called,  which  were  repealed  forever  in  1846. 
The  Corn  Laws  forbade  the  importation  of  foreign  cereals 
under  heavy  pecuniary  penalties.  The  simple  purpose  of 
the  landlords  then  governing  England  was  to  raise  the 
price  of  their  grain  by  shutting  off  Competition  of  for- 
eigners by  means  of  these  prohibitory  tariff-taxes.  It  was 
Protectionism  pure  and  simple.  It  was  designed  to  raise 
the  price  of  bread  to  the  masses  of  their  countrymen,  and 
often  did  raise  it  to  the  point  of  their  starvation.  But  we 
have  just  seen,  that  the  higher  the  price  of  the  produce, 
the  wider  the  margin  for  Rent  for  the  lands  that  produce 
it.  The  Corn  Laws  of  England  enriched  the  landlords  at 
the  expense  of  all  other  classes  and  to  the  starvation  of 
many  of  the  poor.  As  has  been  well  said,  this  was  the 
most  successful  of  all  the  many  expedients  that  have  been 
tried,  "  to  fertilize  the  rich  man's  land  by  the  sweat  of  the 
poor  man's  brow.'"  The  words  of  Daniel  O'Connell,  spoken 
Sept.  28,  1843,  in  his  parliamentary  fight  against  the  high- 
tariff  Corn  Laws,  were  surfeited  with  truth  and  righteous- 
ness :  "  But  what  is  the  meaning  of  '  Protection '  ?  It  means 
an  additional  sixpence  for  each  loaf ;  that  is  the  Irish  of  it. 
If  the  landlord  had  not  the  protection,  the  loaf  would  sell  for 
a  shilling,  but  if  he  has  protection,  it  will  sell  for  one  and  six- 
pence. Protection  is  the  English  for  sixpence  ;  and  what  is 


178  PRINCIPLES    OF   POLITICAL   ECONOMY. 

more,  it  is  the  English  for  an  extorted  sixpence.  The  real 
meaning  of  4  Protection,''  therefore,  is  robbery,  —  robbery  of 
the  poor  by  the  rich" 

At  the  present  moment  and  for  twenty-five  years  past, 
the  public  laws  of  the  United  States  ostensibly  relating  to 
Taxes,  have  had  an  immense  influence  upon  the  value  and 
rents  of  the  agricultural  lands  of  the  country  to  depress 
them ;  because  these  laws  have  put  up  nearly  or  wholly 
impassable  barriers  to  the  coming  in  of  those  foreign  goods, 
against  which  the  farmers  would  naturally  and  profitably 
and  inevitably  have  sold  their  surplus  agricultural  produce ; 
by  destroying  the  foreign  market  for  farm  products,  these 
laws  do  in  effect  destroy  a  large  part  of  the  value  of  the 
farms  of  the  country,  and  of  what  would  otherwise  be  the 
rentals  of  a  part  of  them ;  the  Constitution  of  the  country 
expressly  forbids  any  taxation  whatever  of  Exports,  but 
these  laws  have  precisely  the  same  effect  on  the  value  of 
farm  products  if  they  were  themselves  forbidden  to  be 
exported,  because  those  goods  for  which  these  would 
be  otherwise  exchanged  for  a  profit  are  forbidden  to  be 
imported.  A  market  for  products  is  products  in  market. 
Thus  these  wretched  laws  lower  the  price  of  farm  products, 
and  consequently  the  value  of  farms  and  of  their  rents, 
and  impoverish  the  farmers  who  are  nearly  one-half  of  the 
entire  population  of  the  country. 

While  these  paragraphs  are  being  written,  comes  the 
intelligence  of  the  formation  of  the  "  North  American  Salt 
Company,"  whose  purpose  is  in  their  own  language  "  to 
unify  and  systematize  the  salt  interests  of  the  United  States 
and  Canada,"  and  to  this  end  "  arrangements  have  been  com- 
pleted for  the  purchase  and  control  of  nearly  all  the  existing 
salt  properties  of  the  North  American  continent."  As  this 
is  a  fair  instance  out  of  some  thousands,  in  which  a  tariff- 
tax  has  the  designed  effect  to  lift  or  lower  values  which 


MATERIAL   COMMODITIES.  179 

deeply  concern  the  people,  let  us  look  at  it  for  a  moment. 
On  the  average  of  the  past  twenty-five  years  the  tariff-tax 
on  salt  has  in  general  doubled  the  cost  of  that  necessary  of 
life  to  the  whole  people  of  the  United  States.  When 
Canada  had  no  such  tax,  American  makers  of  it  sold  salt 
sometimes  to  the  Canadians  40%  less  than  they  would  sell 
it  to  their  own  countrymen.  On  the  basis  of  this  United 
States  tariff-tax  (it  would  never  have  been  dreamed  of 
without  it)  this  new  company  comes  forward  with  a  scheme 
of  international  monopoly  to  control  in  their  own  interest 
the  price  of  a  prime  necessity  of  life.  They  propose  to 
issue  stock  and  bonds  to  the  amount  of  $15,000,000,  with 
which  to  buy  up  "  the  existing  salt  properties  "  ;  and  they 
frankly  avow  in  the  prospectus  from  which  we  are  quoting, 
that  profits  of  12,000,000  a  year  on  their  capital  are  justi- 
fied by  the  present  outlook.  Whence  are  these  immense 
profits  to  come  ?  Out  of  the  pockets  of  the  masses  of  the 
American  people  bound  hand  and  foot  in  the  meshes  of  a 
legal  monopoly,  which  they  themselves  allow  themselves  to 
be  ensnared  in  !  In  a  similar  but  more  outrageous  way, 
are  bound  up  at  the  present  moment  in  the  secret  so-called 
"  Trusts  "  about  forty  more  of  the  necessaries  of  life ;  each 
one  of  which,  unless  it  be  the  "  Standard  Oil  Trust,"  has 
its  footing  in  a  so-called  "  protective  "  tariff-tax,  and  would 
collapse  instantly  on  the  repeal  of  that ! 

It  was  necessary  in  order  to  complete  our  study  of  the 
second  class  of  material  commodities,  namely,  those  pro- 
duced from  valuable  and  rentful  lands,  to  glance  in  passing 
at  the  frequently  disturbing  effect  on  these,  aside  from  their 
cost  of  production,  of  sinister  laws  plausibly  imposed  upon 
an  unsuspicious  people  in  the  interest  and  at  the  instance 
of  a  privileged  few. 

3.  It  only  remains  in  this  chapter,  devoted  to  the  dis- 
cussion of  material  Commodities  in  their  three  economic 


180  PRINCIPLES   OF   POLITICAL   ECONOMY. 

classes,  to  conclude  with  a  glance  at  the  third  class,  namely, 
those  material  valuables  that  are  obtained  from  free  and 
unowned  sources,  such  as  masts  cut  in  the  wilds  of  America 
on  both  oceans  two  and  three  hundred  years  ago,  and  fish 
caught  on  the  Banks  of  Newfoundland,  and  furs  gathered 
to  such  profit  in  the  north  by  the  Hudson's  Bay  Company, 
and  salt  evaporated  in  the  tropics  by  a  free  sun  from  old 
ocean's  brine. 

These,  and  all  such  things  as  these,  have  a  cost  of  pro- 
duction determined  only  by  the  cost  of  present  labor  and 
capital,  and  consequently  a  grade  of  value  determined  only 
by  present  Demand  and  Supply,  unentangled  for  the  most 
part  by  questions  of  rent  and  prior  claim  and  taxation  and 
nationality.  All  these  things,  accordingly,  are  relatively 
cheap,  except  as  the  element  of  Scarcity,  and  on  that 
account  of  strong  Desire,  may  sometimes  come  in  to 
enhance  the  value.  No  man  can  tell  the  time  exactly 
when  French  fishermen  from  the  coasts  of  Brittany  ven- 
tured over  to  the  Banks  of  Newfoundland  in  their  frail 
barks  for  the  abundant  cod  in  those  waters,  and  went  back 
home  again  at  the  close  of  the  season  freighted  with  plenty 
of  a  free  and  cheap  food  for  their  families  and  countrymen ; 
or  when  it  was  that  rude  men  calling  themselves  English 
followed  these  in  their  western  track  for  the  same  general 
purposes,  to  become  thereby  hardy  seamen  on  deeper  seas, 
such  as  those  who  gained  long  afterwards  the  naval  vic- 
tories of  Nelson ;  and  we  have  all  read  in  the  fascinating 
pages  of  Irving  the  ventures  and  adventures  of  John  Jacob 
Astor,  the  attraction  of  free  furs  in  the  Northwest  of 
America,  the  hazards  and  the  history  incident  to  obtaining 
them,  and  the  immense  -profits  gained  by  their  sale  in  the 
markets  of  the  old  world. 


MATERIAL   COMMODITIES.  181 


CHAPTER   III. 

PERSONAL    SERVICES. 

THERE  are  three  kinds  of  things  only  ever  bought  and 
sold  in  this  good  world  of  ours.  In  the  preceding  chapter 
we  have  conned  carefully  the  first  kind,  material  com- 
modities, in  their  three  subdivisions  of  land-parcels  and 
products  of  such  parcels  and  products  of  free  land  and 
sea.  In  the  present  chapter  we  come  to  study  the  second 
kind  of  valuable  things,  personal  services,  which  we  shall 
also  find  subdivisible  into  three  classes.  We  have  treated 
of  Commodities  first,  because  their  value  in  its  grounds 
and  changes  is  more  easily  understood  than  that  of  the 
other  two  kinds,  while  in  point  of  time  Services  might  well 
enough  have  been  considered  first,  since  it  is  these  that 
manipulate  into  value  the  originally  rude  forms  of  Nature. 
The  main  difference  between  the  two  is  this:  in  Com- 
modities the  attention  is  naturally  drawn  to  tangible 
things  offered  for  sale,  such  as  lands  and  wheat  and  fish ; 
while  in  Services  the  attention  is  strongly  drawn  to  per- 
sons offering  them  for  sale,  such  as  the  common  laborer 
and  the  skilled  artisan  and  the  professional  artist.  This 
distinction,  though  obvious  and  useful  as  between  com- 
modities and  services,  is  not  after  all  radical;  because 
Economics  is  a  science  of  Persons  from  beginning  to  end ; 
inasmuch  as  the  services  precede  and  are  merged  in  the 
commodities,  and  inasmuch  as  the  Desires  (personal)  of 
some  men  for  the  renderings  of  other  men  antedate  and 
underlie  all  exchanges  whatsoever. 


182  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Personal  Services  are  technically  named  Labor  in  the 
science  of  Political  Economy.  This  nomenclature  is  old 
and  familiar,  and  will  probably  always  persist  on  that 
account,  but  it  is  not  of  itself  of  the  happiest,  and  it  gives 
birth  to  some  ambiguities  and  many  fallacies.  Let  us  look 
at  these  for  a  moment,  before  we  pass  to  the  definition  and 
discussion  of  what  is  commonly  called  Labor,  but  what  is 
better  described  by  the  term,  Personal  Services. 

Contrast  will  help  us  a  little  here.  Commodities  can 
always  be  measured  by  some  Standard  outside  of  them- 
selves :  for  example,  land-parcels  are  measured  into  acres 
and  fractions  thereof  by  a  surveyor's  compass  and  chain ; 
metals  and  cereals  are  weighed  into  centners  and  parts 
thereof  by  scales  of  some  sort ;  and  sugar  is  not  only 
weighed  at  the  custom-house,  but  tested  as  to  other  qual- 
ities by  the  polarise  ope.  Now  land,  wheat,  sugar,  and  all 
other  commodities,  have  an  existence  separate  from  the 
standards  that  measure  them,  and  whether  they  are 
bought  or  not  they  continue  for  a  time  essentially  the 
same.  They  exist  per  se.  They  were  indeed  brought 
into  existence  on  purpose  to  be  sold,  and  if  they  cannot  be 
sold,  similar  things  additional  will  not  then  and  there  be 
brought  into  the  market,  but  these  things  themselves  are 
there  separate  from  the  seller  and  separate  from  the  buyer. 
Not  so  with  personal  services.  They  do  not  exist  per  se. 
They  are  not  separate  from  the  seller,  and  they  cannot 
come  into  existence  without  a  buyer.  Skill  is  something 
the  artisan  cannot  part  with,  nor  can  he  sell  the  service  to 
which  the  skill  gives  rise  till  the  buyer  be  present  with 
the  return-service  in  his  hands.  The  Laborer  of  any  class 
cannot  put  his  "  service  "  on  exhibition,  and  then  wait  for 
a  buyer,  as  the  commercial  drummer  sells  goods  by  sample. 
The  doctor,  for  example,  must  have  his  patient  before  he 
can  show  his  skill.  The  buying  and  selling  of  personal 


PERSONAL   SERVICES.  183 

services,  accordingly,  is  more  intimate  and  ultimate  than 
the  buying  and  selling  of  commodities :  it  brings  people 
more  closely  together :  it  depends  much  more  on  traits  of 
character  and  on  acquired  skill. 

Right  here  we  may  see  clearly  the  main  objection  to  the 
term,  "  Labor,"  as  commonly  used,  and  the  bad  fallacy  to 
which  it  gives  birth.  "Labor"  is  indeed  in  form  and 
origin  an  abstract  term  as  much  as  "service"  is,  with  this 
difference,  that  the  word  "  service  "  radically  implies  the 
person  serving  and  another  person  served  at  the  same 
instant ;  but  the  term  "  Labor  "  has  long  been  taking  on 
itself  in  the  mouths  of  men  a  concrete  meaning,  as  if  it 
might  be  something  separate  from  the  laborers,  as  in  the 
common  phrase  "Labor  and  Capital,"  which  has  already 
done  a  world  of  mischief  and  is  likely  to  do  a  good  deal 
more,  because  it  seems  to  imply,  that  the  two  are  alike 
in  independent  self-existence,  and  that  they  stand  over 
against  each  other  on  equal  terms  for  a  fair  bargain  or 
for  a  free  fight.  This  is  not  the  case,  as  we  shall  see  more 
fully  later ;  since  capital  is  something  separable  from  the 
capitalist,  always  a  commodity  or  a  claim,  always  trans- 
ferable, always  valuable  or  else  it  will  not  be  "  Capital." 
Some  of  the  German  economists,  and  particularly  John 
Conrad  of  Halle,  have  avoided  this  difficulty  by  a  clean 
nomenclature.  They  say  "  Labor-givers "  and  "  Labor- 
takers,"  instead  of  Laborers  and  Capitalists,  and  especially 
instead  of  "  Labor  and  Capital,"  thus  emphasizing  the  per- 
sonal element  in  both  terms,  and  also  leaving  themselves 
free  to  define  and  use  the  term  "  Capital  "  as  distinct  from 
any  particular  capitalist,  while  the  term  "  Labor  "  cannot 
be  defined  and  used  as  distinct  from  any  given  laborer. 
This  precise  point,  though  probably  new,  is  of  very  con- 
siderable consequence  in  the  true  doctrine  of  Wages. 

We  are  compelled   by   the   exigencies  of   the    English 


184  PRINCIPLES   OF   POLITICAL   ECONOMY. 

language  and  the  still  stronger  fetters  of  economical  cus- 
tom to  continue  to  use  the  terms  "Labor"  and  "Laborers" 
in  their  technical  sense,  and  in  connection  with  the  sci- 
entific terms  "  Capital  "  and  "  Capitalist "  ;  but  we  shall 
always  use  each  of  these  words  in  the  same  meaning,  and 
free  them  as  far  as  possible  from  the  fungous  accretions 
that  have  fastened  upon  them  in  the  course  of  time. 

Personal  effort  of  any  kind  put  forth  for  another  in  view 
of  a  return-service  and  for  the  sake  of  it  is  labor. 

Laborers  are  persons  rendering  their  peculiar  services  to 
other  persons  for  a  commercial  reward. 

The  valuable  received  by  a  laborer  for  his  service  rendered 
is  Wages. 

These  definitions  exclude  from  our  circle  of  view  all 
Efforts  of  anybody  put  forth  for  other  than  commercial 
reasons ;  and  they  include  all  Efforts  of  everybody,  from 
the  President  to  the  scrub,  put  forth  under  the  induce- 
ment of  a  return-service  or  Wages.  No  good  end  seems 
to  be  reached  by  trying  to  distinguish,  as  Francis  Walker 
does  in  his  "Wages-Question,"  between  the  "Wages-class" 
and  the  "Salary-class,"  because  there  appears  to  be  no 
scientific  or  other  economical  difference  between  Wages 
and  Salary.  Each  is  a  return-service  for  another  service 
rendered,  and  that  is  all  there  is  to  it.  The  whole  class 
of  Laborers,  accordingly,  in  any  civilized  and  progressive 
country,  is  immensely  large  and  becoming  constantly 
larger.  Excluding,  of  course,  from  this  class  all  persons 
in  so  far  as  they  render  so-called  moral  services  to  others, 
which  are  in  their  very  nature  free,  such  as  those  that 
spring  from  duty  and  courtesy  and  benevolence,  and  these 
happily  are  also  an  immense  and  fast-augmenting  class, 
though  our  Science  has  nothing  to  do  with  them  directly, 
the  number  of  those  persons  in  every  community  and  in 
every  rank  of  every  community,  who  sell  personal  services 


PERSONAL   SERVICES.  185 

of  some  sort  in  distinction  from  commodities  and  credits, 
is  pretty  nearly  as  large  as  the  per  capita  population  of 
adults  and  competents  within  that  circuit.  It  must  be 
borne  in  mind,  that  the  same  persons  whose  primary  busi- 
ness it  may  be  to  sell  commodities  or  credits,  often  sell 
services  also  in  some  subordinate  or  incidental  way;  and 
also,  that  the  same  persons,  who  are  dispensing  on  the  one 
hand  their  gifts  and  moral  renderings  freely,  are  fre- 
quently of  the  busiest  in  selling  on  the  other  hand  their 
personal  services  for  pay.  In  other  words,  the  sellers  of 
Services  cannot  be  discriminated  as  to  their  persons  from 
other  sellers,  or  even  from  downright  givers  ;  but  the  action 
itself,  and  the  law  of  it,  is  quite  distinct  in  the  three  cases 
of  selling,  and  utterly  diverse  in  the  one  case  of  giving. 

Now,  can  we  sub-classify  within  this  vast  class  of  ser- 
vice-sellers, so  as  to  help  us  understand  better  the  class  as 
a  whole,  and  so  especially  as  to  help  us  understand  better 
the  Law  of  Wages  within  the  entire  class  ?  We  have  just 
criticised  Walker  in  a  friendly  spirit  for  attempting  to 
draw  lines  of  demarcation  within  this  wide  field :  can  we 
draw  any  useful  ones  ourselves  less  open  to  criticism  than 
his,  and  ^uch  as  rest  back  upon  fair  differences  in  nature 
and  form?  Walker  makes  his  distinctions  turn  on  certain 
peculiarities  in  the  return-services :  can  we  make  ours  turn 
better  and  clearer  on  certain  peculiarities  in  the  services 
themselves?  We  can  at  least  try.  Hard  and  fast  lines 
cannot  be  drawn  here,  we  admit.  The  exterior  lines 
around  Commodities  and  around  Services  and  around 
Credits  are  each  sharp  and  firm ;  and  so  is  the  deep-fixed 
circle  that  includes  all  three  of  these  alike  as  Valuables ; 
but  within  the  smaller  circles  the  lines  of  needful  division 
are  somewhat  more  shadowy,  though  we  leave  with  confi- 
dence to  competent  Economists  the  triple  lines  but  just  now 
drawn  within  the  sphere  of  material  Commodities. 


186  PRINCIPLES   OF  POLITICAL  ECONOMY. 

A  rude  classification  among  "  Laborers,"  then,  yet  one 
useful  and  indeed  indispensable,  may  be  made  into 
(1)  Common  Laborers,  (2)  Skilled  Laborers,  and  (3)  Pro- 
fessional Laborers. 

Common  Laborers  are  those,  whose  services  may  be 
acceptably  rendered  by  an  ordinarily  competent  person 
after  a  little  patient  practice  and  instruction,  without  any- 
thing corresponding  to  an  apprenticeship  as  a  preliminary 
to  their  selling  their  service.  Farm  hands,  teamsters,  por- 
ters, waiters,  miners,  'longshoremen,  railroad  laborers,  and 
many  more  belong  to  this  first  class.  Owing  to  the  ease 
with  which  this  class  can  be  recruited  at  any  time  from 
growing  boys  and  emigrating  foreigners  and  from  those 
who  may  have  essayed  the  class  above  and  fallen  back,  the 
Supply  here  is  kept  constantly  large  relatively  to  the 
Demand  for  such  services,  and  consequently  Wages  are 
always  the  lowest  and  steadiest  in  this  lowest  class  of 
Laborers. 

Skilled  Laborers  are  those,  who  have  had  to  pass  through 
something  equivalent  to  an  apprenticeship  in  order  to  be 
able  to  offer  their  services  for  sale.  These,  as  a  class,  pre- 
sent some  considerable  points  of  difference  from  common 
laborers.  Their  numbers  are  fewer,  for  the  reason,  that 
relatively  few  parents  can  afford  to  give  their  children  the 
time  and  money  needful  for  them  to  learn  a  trade,  or  to 
become  skilful  in  any  art  requiring  prolonged  education ; 
as  a  result  of  this  lessened  press  of  competition  among 
themselves,  and  because  being  intelligent  and  consequently 
mobile  they  are  able  to  insist  better  on  their  claims  and 
distribute  themselves  to  points  where  their  services  are  in 
more  demand ;  and  because  they  are  likely  to  be  subject  to 
a  stronger  Demand  than  common  laborers,  on  account  of 
the  close  connection  of  their  services  with  special  accumu- 
lations of  Capital;  the  Wages  of  skilled  laborers  will 


PERSONAL   SERVICES.  187 

infallibly  rule  higher  than  those  of  common  laborers. 
Artisans  in  general  constitute  this  second  class  of  laborers. 
Professional  Laborers  are  those,  who  have  received  a 
technical  education,  —  something  more  than  an  apprentice- 
ship, —  expressly  to  fit  them  to  render  difficult  and  delicate 
services  to  their  fellow-men  for  pay,  and  who  possess 
besides  the  requisite  character  and  talents  and  genius  to 
enable  them  to  succeed.  Clergymen,  physicians,  lawyers, 
literary  men,  artists,  actors,  and  many  more,  render  pro- 
fessional services  loosely  so-called.  The  obstacles  at  the 
entrance  of  this  path  occasioned  by  the  lack  (1)  of  appro- 
priate natural  gifts,  or  (2)  of  the  requisite  industry  and 
character,  or  (3)  of  the  means  of  suitable  education  and 
training,  practically  exclude  so  many  persons,  that  the 
competition  in  the  higher  walks  of  professional  life  is  not 
such  as  to  prevent  a  very  large  remuneration  for  service^ 
rendered.  The  demand  for  these  is  often  peculiarly  intense, 
as  well  as  the  supply  peculiarly  limited.  When  great 
interests  of  property,  of  reputation,  of  life,  are  at  stake, 
it  is  felt  that  the  best  men  to  secure  these  must  be  had  at 
almost  any  price.  Fees  and  rewards  for  services  of  great 
delicacy,  of  great  difficulty,  of  great  danger,  are  paid  by 
individuals  and  corporations  and  nations  without  grudg- 
ing. Comparatively  few  men  reach  the  highest  points  of 
excellence  in  their  respective  professions,  and  they  have  in 
consequence  a  natural  monopoly  in  these  fields  of  effort, 
and  receive  for  their  labor  a  very  high  rate  of  Wages. 
For  example,  Daniel  Webster  often  took  a  fee  of  flOOO 
for  a  single  plea  in  court;  Paganini,  a  like  sum  for  an 
hour's  playing  on  a  violin ;  and  Jenny  Lind,  at  least  as 
much  for  an  evening's  singing  in  a  concert,  because  there 
was  in  each  case  a  strong  demand  for  a  peculiar  service 
and  only  one  person  in  the  world  who  could  render  that 
service  in  the  circumstances  to  the  same  perfection.  But 


188  PRINCIPLES   OF   POLITICAL   ECONOMY. 

the  objections  which  lie  with  such  force  against  artificial 
monopolies,  cannot  be  urged  at  all  against  a  natural  monop- 
oly ;  for,  if  the  road  to  excellence  be  open  to  all,  and  no 
artificial  obstructions  thrown  in  the  way  of  any,  there  is 
no  blame  but  rather  praise  for  him  who  distances  all 
competitors,  and  asks  and  receives  for  services  of  peculiar 
excellence  a  large  remuneration.  Exchange  rejoices  in  all 
diversities  of  advantage  that  are  the  birth  of  freedom,  but 
reprobates  with  all  her  force  advantage  that  is  gained  by 
artificial  restrictions,  because  artificial  restrictions  always 
infringe  on  somebody's  right  to  render  services  for  a 
return ;  and  the  right  to  render  services  for  a  return  is  the 
fundamental  conception  in  the  Right  of  Property. 

Is  it  open  for  us,  to  gain  a  somewhat  deeper  and  clearer 
sense  of  what  that  is  exactly  that  is  rendered  in  these  three 
Masses  of  personal  Services,  before  we  pass  to  the  consider- 
ations which  determine  in  all  cases  their  Value?  It  is 
plain,  that  what  common  Laborers  sell  for  the  most  part, 
if  not  exclusively,  is  muscular  exertion  of  some  kind, 
guided  by  the  mind  as  trained  in  habit,  and  aided  by 
appropriate  implements,  all  designed  to  meet  the  desire 
and  so  call  forth  the  return-service  of  the  purchaser ;  it  is 
equally  plain,  that  skilled  Laborers  with  scarcely  any  more 
exceptions  than  before  sell  the  same  sort  of  physical  exer- 
tions, or  motions,  this  time  guided  by  mental  action  of  a 
higher  grade  and  wider  scope,  and  aided  also  by  more 
elaborate  tools  working  towards  the  desires  and  consequent 
returns  of  a  set  of  buyers  more  scrupulous  arid  exacting 
than  the  first  set ;  and  it  is  plain  enough,  that  some  of  the 
highest  professional  services,  for  instance  the  surgeon's, 
though  not  by  any  means  the  mass  of  such  services,  are 
essentially  of  the  same  kind  as  the  two  former,  namely, 
muscular  motions,  guided  by  the  most  intimate  and  exact 
knowledge  of  things,  and  aided  too  by  instruments  the 


PEESONAL   SERVICES.  189 

most  scientific  and  expensive.  In  many  of  the  professional 
services  the  physical  element  sinks  to  a  minimum,  while 
the  intellectual  and  moral  factors  come  to  the  front  and 
take  up  the  chief  attention ;  it  will  be  found,  however,  that 
the  physical  factor  is  always  present  in  some  degree,  as, 
for  example,  in  the  counsel's  plea  before  the  court,  and  in 
the  physician's  visit  on  his  patient ;  and  in  almost  all  cases, 
if  not  in  all,  some  implement  or  other  plays  its  part  in  the 
process  of  professional  service  before  it  ends,  as  Cicero 
used  a  pitch-pipe  or  tuning-fork  to  gauge  his  voice  in  his 
great  pleas  for  Roman  clients. 

Precisely  what  is  rendered,  then,  in  all  cases  of  Personal 
Services  in  each  of  their  three  loose  kinds,  is  muscular 
motion  conjoined  with  mental  effort  and  both  these  assisted 
by  habit  and  by  some  form  of  what  we  call  Capital.  The 
Services  are  therefore  Personal  in  the  highest  sense.  The 
Mind  and  Body  of  the  Laborer  conspire  to  render  them. 
The  most  sagacious  animal  can  never  be  trained  to  render 
one  of  them.  They  are  wholly  human.  Nevertheless  the 
muscular  part  in  the  rendering  —  motion  and  resistance  to 
motion — is  just  what  tools  and  machinery  can  be  made 
to  take  the  place  of  in  large  measure  but  never  in  whole 
measure,  because  tools  may  not  be  taught  to  think.  It 
may  seem  sometimes  as  if  machinery  were  about  to  take 
the  place  of  human  hands  in  some  classes  of  Production ; 
but  it  will  be  found  in  the  ultimate  issue,  as  it  has  been 
found  in  every  stage  of  the  process,  that  human  hands  and 
human  minds  in  action  are  absolutely  essential  at  every 
point  of  the  Exchanges  among  men.  Men  are  so  made 
and  Society  is  so  organized,  that  they  need  increasingly  for 
their  comfort  and  progress  the  personal  services  of  their 
fellow-men,  and  can  render  their  own  in  exchange  for 
these ;  and  consequently,  there  never  can  fail  (under 
freedom)  a  MARKET  for  Personal  Services  of  the  three 
kinds. 


190  PKINCIPLES   OF   POLITICAL   ECONOMY. 

Having  now  seen  as  closely  as  possible  what  that  is 
which  is  rendered  in  personal  services,  let  us  pass  to  the 
principles  which  determine  their  remuneration.  That  is, 
we  will  now  inquire  carefully  into  the  Value  of  personal 
services.  We  have  learned  already,  that  Demand  and 
Supply  in  their  action  and  reaction  upon  each  other  deter- 
mine in  all  cases  the  value  of  Commodities  for  the  time 
being ;  and  we  shall  find  it  to  be  equally  the  dictate  of  all 
reason,  and  the  outcome  of  all  experience,  that  Demand 
and  Supply  decide  too  in  all  cases  on  the  value  of  all  Ser- 
vices and  all  Credits  then  and  there.  Shall  we  look  first  at 
the  considerations  that  issue  in  the  Demand  for  personal 
services,  and  then  at  those  other  considerations  that  limit 
the  Supply  of  them? 

1.  Demand  is  never  the  mere  desire  for  anything,  but 
desire  coupled  with  the  ability  to  pay  for  it  at  rates  satis- 
factory to  the  present  holder.  The  Demand  for  Services, 
therefore,  is  made  by  the  prospective  purchasers  of  them ; 
and  the  purchasers,  of  course,  are  those  who  desire  them 
and  are  willing  to  pay  for  them  at  current  rates.  It  will 
be  easiest  and  surest  for  us  to  study  the  Demand  for  Ser- 
vices in  each  of  the  three  classes  of  them  in  succession. 

(1)  The  Demand  for  Common  Laborers  has  several 
points  of  difference  from  that  for  Skilled,  and  from  that 
for  Professional,  Laborers.  It  is  scarcely  ever  intense. 
It  is  mostly  disconnected  from  large  accumulations  of 
Capital.  The  desire  is  usually  for  immediate  gratification, 
without  any  other  end  in  view.  It  is  frequently  for  such 
a  service,  as,  if  a  renderer  may  not  be  conveniently  and 
cheaply  found,  one  is  inclined  to  do  for  himself.  For 
instances :  if  the  barber  be  not  accessible  and  reasonable 
and  tolerably  skilful,  a  man  will  certainly  shave  himself, 
provided  he  have  not  yet  attained  the  independence  and 
the  luxury  of  wearing  a  full  beard;  and  the  ordinary 


PERSONAL   SERVICES.  191 

housewife,  if  the  cleanly  and  tractable  domestic  does  not 
come  into  sight,  will  do  her  own  work  with  casual  assist- 
ance. It  is  this  important  fact,  that  common  services 
among  men  and  women  in  common  life  may  in  many  cases 
be  dispensed  with  altogether,  and  in  many  other  cases  sub- 
stitutes be  found  for  them,  in  connection  with  the  other 
important  fact,  that  common  laborers  learn  their  art  quickly 
and  easily,  and  consequently  are  present  everywhere  in 
large  numbers,  that  makes  the  Wages  of  such  laborers 
uniformly  low.  The  Demand  is  moderate  and  the  Supply 
is  large. 

(2)  The  Demand  for  Skilled  Laborers  is  steadier  and 
stronger  than  for  Common,  because  in  general  the  desire 
for  these  is  not  for  immediate  gratification,  but  for  an  ulti- 
mate satisfaction  to  arise  from  the  commercial  cooperation 
of  these  laborers  with  their  employers,  who  are  capitalists, 
in  connection  with  accumulations  of  capital,  the  end  in 
view  being  the  production  of  commodities  for  sale  at  a 
profit.  Here  comes  in  a  new  motive  on  the  part  of  capi- 
talists to  buy  the  personal  services  of  laborers.  The  motive 
is  simple  and  intelligible  and  commendable,  but  its  nature 
and  operation  is  popularly  and  grossly  misapprehended. 

Capital  is  the  result  of  Abstinence  from  the  present 
use  of  a  Valuable  in  gratification,  for  the  sake  of  a  future 
increase  of  it  through  Production.  But  Abstinence  is 
always  irksome  in  itself:  It  must  have  its  prospective 
reward  in  an  increase,  a  profit,  or  it  will  never  transform 
itself  from  a  mere  valuable  into  a  capitalized  product. 
Now,  the  owner  of  the  valuable,  having  transformed  it 
into  capital  from  this  motive,  is  under  a  commercial  neces- 
sity to  hire  laborers,  in  order  by  their  help  to  make  his 
capital  yield  a  profit.  Capital  lying  idle  decreases  in  value 
even,  to  say  nothing  of  its  yielding  no  increase  to  itself ; 
and  the  motive  of  the  capital-owner,  accordingly,  is  strong 


192  PRINCIPLES   OF   POLITICAL   ECONOMY. 

and  constant  to  buy  the  services  of  laborers,  to  marry 
these  services  with  his  own  capitalized  products,  and  thus 
to  produce  commodities  for  sale,  whose  value  shall  be 
greater  than  the  present  value  of  the  capital  and  the  ser- 
vices combined.  Here  we  reach  in  the  minds  and  motives 
of  a  large  class  of  men  an  ultimate  Demand  for  laborers, 
and  specially  for  skilled  laborers,  which  is  as  true  and 
constant  to  its  legitimate  end  of  Profit  as  the  needle  is 
true  and  constant  to  the  pole. 

At  this  point  it  is  very  evident,  that,  if  the  fair  expec- 
tation of  the  capitalists  be  realized  in  a  steady  profit,  and 
the  larger  the  circle  of  capitalists  and  the  more  of  capi- 
talized products  to  each  the  better  for  all  concerned,  the 
Demand  for  laborers  will  become  steady,  and  will  be  likely 
to  steadily  increase,  because  there  will  then  be  a  constant 
motive  on  the  part  of  all  capitalists  as  such  to  put  back  a 
part  or  all  of  their  yearly  profits  into  capitalized  products, 
and  thus  the  Demand  for  laborers  will  become  more 
intense,  and  the  rates  of  Wages  so  far  forth  must  be 
enhanced.  The  steady  Demand  for  the  services  of  the 
laborers  hinges  upon  the  steady  Profits  of  the  capitalists, 
and  there  is  no  antagonism  between  the  interests  of  these 
two  classes  of  buyers  and  sellers,  but  rather  a  complete 
identity  of  interest  between  them. 

We  are  looking  now  solely  at  what  constitutes  the 
Demand  for  laborers  of  the  second  class.  As  always,  so 
here,  there  is  Desire  first  and  then  a  ready  Return-service. 
The  Desire  of  employers  of  this  class  is  for  a  Profit  on 
their  capital,  and  the  return-service  for  the  laborers  is  pres- 
ent as  a  part  of  these  capitalized  products.  This  part  of 
the  capital  we  call  Wages-Portion.  It  is  already  in  hand 
or  provided  to  be  in  hand  when  the  wages  fall  due.  Of 
course  it  is  expected,  that  the  current  wages  will  ulti- 
mately come  out  of  the  current  joint-production  of  the 


PERSONAL   SERVICES.  198 

laborers  upon  the  capitalized  products  set  apart  for  that 
purpose  by  the  capitalist.  But  if  the  profits  fail  to  the 
capitalists  at  the  end  of  that  industrial-cycle,  whether  it 
be  two  months  or  twenty-four,  then  Desire  will  fail  or  be 
weakened  to  hire  laborers  for  the  next  cycle,  and  the 
return-services  or  Wages-Portion  with  which  to  pay  them 
for  another  cycle  will  be  lessened  of  necessity.  Both  ele- 
ments in  Demand  are  curtailed  by  the  falling-off  of  Profits. 
There  is  at  the  same  instant  less  desire  to  buy  services  and 
less  ability  to  pay  for  them.  It  is  of  the  very  nature  of 
capitalized  products  to  wear  out  in  the  process  of  produc- 
tion ;  if  there  be  not  net  profits  at  the  end  of  the  cycle  for 
the  capitalists,  it  shall  go  hard  but  there  will  be  less  wages 
for  the  laborers  during  the  next  cycle.  This  is  not  a  mat- 
ter of  sentiment  or  of  philanthropy,  but  of  eternal  law, 
which  God  has  ordained  and  the  devices  of  men  cannot 
frustrate.  Capitalists  and  laborers  are  joint  partners  in 
the  same  concern.  Under  industrial  and  commercial  free- 
dom their  interests  are  identical.  Both  are  buyers  and 
sellers  to  each  other  at  the  same  instant;  and,  as  always 
when  both  parties  are  alike  benefited  and  satisfied  with  a 
trade,  both  will  cheerfully  and  profitably  continue  the  con- 
nection. The  Demand  of  each  class  for  the  product  of 
the  other  will  continue  unabated.  Profits  and  wages  recip- 
rocally beget  each  other. 

But  still  it  is  not  altogether  true,  what  has  sometimes 
been  stated  by  economists,  that  capitalists  are  under  the 
same  sort  of  pressure  to  bay  their  services  as  the  laborers 
are  to  sell  them.  Capital  is  a  Valuable  already  created  by 
the  mutual  desires  and  efforts  of  two  persons,  and  is  now 
the  exclusive  property  of  one  of  them,  and  has  also  been 
set  apart  by  him  through  an  act  of  will  to  be  thereafter  an 
aid  to  some  future  production  under  the  motive  of  a  new 
value  to  accrue  thereby.  The  capital  has  now  become  sec- 


194  PRINCIPLES   OF   POLITICAL   ECONOMY. 

ondary  to  and  separated  from  the  person  who  owns  it.  He 
very  seldom  understands  the  real  nature  and  operation  of 
it.  He  commonly  imparts  to  it  in  his  imagination  a  more 
substantive  and  persistent  existence  than  it  actually  pos- 
sesses. He  is  frequently  more  or  less  stuck  up  as  towards 
his  neighbors  and  employees  in  consequence  of  his  pos- 
session of  it.  The  very  fact  that  he  has  capitalized  it  for 
future  operations  shows  that  he  is  independent  of  it  as  a 
means  of  present  livelihood.  The  personal  services  of  the 
laborers,  on  the  other  hand,  stand  in  very  different  relations 
to  them.  Their  personal  services  may  indeed  be  valuable, 
but  they  cannot  be  capitalized.  As  laborers  they  have 
nothing  else  to  sell.  Unless  they  sell  their  services  now, 
these  have  no  existence  even,  still  less  can  they  have  any 
value.  It  is  only  by  a  mischievous  figure  of  speech,  that 
the  skill  of  laborers  is  sometimes  spoken  of  as  their  "  Cap- 
ital." Therefore,  the  laborers  are  under  a  certain  remote 
yet  inherent  disadvantage  as  sellers  of  their  personal  ser- 
vices, when  compared  with  the  capitalists  as  buyers  of 
them.  This  disadvantage,  however,  though  apparent  in 
the  nature  of  things,  and  under  certain  circumstances  dis- 
astrous to  the  laborers,  may  disappear  practically  under 
another  and  natural  state  of  things;  and  it  is  every  way 
to  be  desired  by  both  classes  alike  that  it  should  disappear 
in  practice. 

Whenever  there  is  a  broad  and  constant  and  profitable 
market  for  all  the  commodities  the  capitalists  and  the 
laborers  can  jointly  produce,  —  that  is  to  say,  whenever 
profits  are  steady  and  remunerative  and  wages  are  high 
and  growing  in  their  purchasing-power,  —  the  Demand  for 
skilled  laborers  must  always  be  such  as  puts  the  laborers 
on  a  footing  of  equality  as  over  against  the  capitalists, 
because  under  such  circumstances  the  purchasers  of  ser- 
vices are  many  and  eager,  two  bosses  will  be  likely  to  be 


PERSONAL   SERVICES.  195 

bidding  for  one  skilled  laborer,  and  then  wages  are  always 
growing  in  dollars  and  each  dollar  growing  in  effective 
purchasing-power. 

It  is  of  the  last  importance  in  this  connection  to  notice, 
that  everything  in  Profits  and  Wages  turns  in  the  last 
resort  upon  the  breadth  and  freedom  of  MARKETS.  It  is 
out  of  the  return-service  received  from  the  sale  of  the 
commodities  produced  jointly  by  the  capitalists  and  labor- 
ers, that  both  wages  and  profits  must  ultimately  be  paid. 
There  is  no  other  possible  source  of  them.  When  the 
Market  fails,  everything  fails  that  leads  up  to  a  market. 
Particularly  fails  the  Demand  for  laborers  for  the  next 
industrial  cycle,  and  of  course  drops  also  the  prospective 
wages  for  that  cycle.  The  public  folly  and  universal  loss 
of  shutting  oft'  foreign  markets  for  our  own  commodities 
by  lofty  tariff -barriers,  as  has  been  conspicuously  done  by 
the  United  States  for  thirty  years  past,  follows  of  course 
from  this  radical  truth ;  and  the  Wages  of  laborers,  instead 
of  being  lifted  by  tariff-taxes,  as  has  been  so  often  falsely 
and  wickedly  asserted,  are  inevitably  depressed  by  them, 
because  they  effectually  forbid  to  capitalists  and  laborers 
their  best  and  freely  chosen  markets  for  the  sale  of  their 
joint  products. 

Another  vastly  important  matter,  constantly  affecting 
the  Demand  for  laborers  of  the  second  class,  is  the  Com- 
petency or  otherwise  of  the  practical  managers  of  the 
Capital  invested  in  industrial  enterprises.  Capital  cannot 
manage  itself.  It  is  of  itself  wholly  inert.  It  is  always 
either  a  Commodity  or  a  Credit.  Conscious  of  their  ina- 
bility to  handle  wisely  their  own  bits  of  Capital,  or  else 
taught  it  through  a  bitter  experience,  by  far  'the  larger 
number  of  individual  owners  of  it  loan  it  to  others  to 
manage ;  they  invest  it  in  some  industrial  corporation,  in  a 
bank  or  a  mill  or  a  railroad.  Some  one  person,  or  at  least 


196  PRINCIPLES    OF   POLITICAL   ECONOMY. 

a  small  body  of  persons,  must  practically  manage  now  all 
specific  accumulations  of  capital.  It  is  they  in  their 
capacity  of  manipulating-capitalists,  who  constitute  in 
large  measure  the  Demand  for  laborers.  But  such  man- 
agers, who  are  at  once  skilful  and  long-headed  and  honest, 
do  not  grow  upon  a  chance  bush.  They  are  rare.  Most 
of  them  in  this  country  at  least  have  been  those,  who 
started  in  a  small  way  in  the  control  of  their  own  earned 
or  small-inherited  properties,  and  rose  through  practice 
and  knowledge  and  conscience  to  the  ability  to  handle 
profitably  to  all  concerned  large  masses  of  Capital.  In 
the  hands  of  such  men,  given  a  tolerable  chance  by  pub- 
lic law  and  private  circumstances,  both  Profits  and  Wages 
are  sure  to  come  in  satisfactorily.  They  are  Captains  of 
Industry.  They  are  an  honor  to  human  nature.  They 
are  a  blessing  to  the  whole  community.  They  have  no 
need  and  no  will  to  ask  to  be  bolstered  up  in  their  business 
by  unjust  taxes  enforced  upon  a  whole  people. 

Such  men  sometimes  have  sons  or  protSgSs,  who  possess 
similar  capacities  and  similar  integrity,  and  these  by  ex- 
perience become  able  to  carry  on  the  business  to  similar 
successful  issues.  This  is  happy,  but  it  is  unusual.  More 
commonly,  in  the  second,  and  pretty  certainly  in  the  third, 
generation,  the  line  of  royal  succession  fails.  There  comes 
in  a  lieutenant  rather  than  a  captain  of  Industry.  Likely 
enough  he  mistakes  the  nature  of  capital,  and  thinks  that 
it  will  go  along  of  itself  without  that  eternal  vigilance 
that  is  the  one  price  of  its  maintenance  and  increase ; 
likely  enough  he  lacks  the  touch  and  rule  of  men,  and  his 
laborers  become  demoralized  and  refractory;  more  likely 
still  he  thinks  he  sees  other  operators  around  him  getting 
quicker  rich  by  speculating  in  enterprises  outside  the 
legitimate  business,  and  takes  some  of  his  own  and  of 
what  is  not  his  own  and  throws  it  out  of  its  proper  chan- 


PERSONAL   SERVICES.  197 

nels ;  and,  as  the  result  of  one  or  all  of  these,  things  soon 
go  wrong,  profits  and  wages  fall  off,  poor  work  is  done 
and  finds  slow  sale,  and  Demand  for  laborers  (which  is 
their  life-blood)  slackens  or  goes  out  in  that  establishment. 
No  wonder  the  Paper-makers  in  their  annual  gathering  at 
Saratoga  of  1889,  resolved  as  the  main  outcome  of  their 
meeting,  that  they  would  bring  up  their  sons  (or  some- 
body's sons)  to  succeed  them  in  their  business  by  a  thor- 
ough practical  training  in  the  paper-mill  itself,  beginning 
early  and  continuing  long.  Industrial  higher  education  in 
this  or  some  other  form  is  the  secondary  hope  of  manufac- 
turing business  in  the  United  States,  the  primary  hope 
being  in  a  decent  commercial  liberty  to  buy  their  supplies 
and  to  sell  their  products  in  the  best  markets  wherever 
these  are  to  be  found. 

There  is  one  other  important  item  that  bears  directly 
upon  the  Demand  for  laborers  of  the  second  class,  and 
consequently  upon  their  Wages,  namely,  the  constant 
introduction  of  more  and  better  Machinery.  At  first  blush 
it  would  seem,  and  it  has  often  been  stated  so,  that  the  use 
of  machinery  takes  just  so  much  work  from  human  hands, 
reduces  by  so  much  the  Demand  for  laborers,  and  tends  to 
lessen  by  so  much  their  wages.  All  this  is  the  opposite  of 
the  truth;  but  before  we  explain  why  it  is  the  opposite 
of  the  truth,  let  us  attend  carefully  to  the  truth  itself,  as 
stated  in  1889  by  the  highest  living  authority  on  these 
special  points,  Sir  Edwin  Chadwick,  the  octogenarian 
pioneer  in  sanitary  and  economic  reforms.  Fifty-six  years 
ago  Chadwick  joined  with  his  colleagues  of  the  English 
Factory  Inspection  Board  in  recommending  reduced  hours 
of  labor  and  other  improvements  wrhich  have  now  become 
general  in  England.  In  a  paper  recently  read  before  the 
Political  Economy  Club,  he  calls  attention  to  the  greatly 
increased  production  which  follows  improved  machinery 
and  shortened  hours. 


198  PRINCIPLES   OF   POLITICAL   ECONOMY. 

He  says :  "  Spinning  machines  which  formerly  turned 
8000  in  a  minute,  now  turn  11,000 ;  and  in  Lancashire  not 
more  than  half  the  hands  are  now  employed  to  produce  the 
same  amount  with  new  machinery  as  were  employed  on  the 
machinery  of  1833.  As  an  example  of  the  extent  of  the  reduc- 
tion of  hands  by  these  improvements,  it  may  be  mentioned 
that  one  large  family  of  cotton  spinners  in  Manchester,  which 
40  years  ago  employed  11,000  hands,  could  not  now  muster 
one  half  that  number.  YET  THE  MILL  POPULATION  HAS 

INCREASED,  AS  WELL  AS  THE  GENERAL  POPULATION,  THE 
HANDS  DISCHARGED  BEING  ABSORBED  IN  OTHER  EMPLOY- 
MENTS. At  the  beginning  of  the  century  the  cost  of  spin- 
ning a  pound  of  yarn  was  a  shilling.  The  pound  of  that 
same  yarn  is  now  spun  for  a  half-penny  by  hands  earning 
double  wages  for  their  increased  energetic  attention  and  skill. 
It  is  now  found,  however,  that  the  strain  of  the  increased 
responsible  attention  cannot  be  so  long  sustained  as  the  slow, 
semi-automatic  pace  by  the  old  working  of  the  old  mills  with 
the  long  hours.  Hence  there  is  a  tendency  to  a  further  vol- 
untary reduction  of  the  working  hours  in  the  best  mills,  first 
to  nine  hours.  In  one  mill,  in  which  2000  men  are  employed 
a  voluntary  reduction  has  been  effected  to  about  eight  hours 
with  a  more  equable  production ;  and  I  have  heard  of  other 
examples.  As  showing  the  cost  of  working  with  inferior 
hands  and  loose  regulations,  a  recent  report  from  the  Man- 
chester Chamber  of  Commerce  states  that  20s.  worth  of  bun- 
dled yarn  may  be  produced  at  a  cost  of  from  2d.  to  M.  per 
pound  less  in  Manchester  than  in  Bombay,  notwithstanding 
the  hours  of  working  are  80  hours  per  week,  while  in  Man- 
chester they  are  only  50.  At  the  present  time  Lancashire, 
with  its  short  hours,  will  meet  G-ermany  or  any  other  country, 
in  neutral  markets,  in  the  world.  In  Germany  the  spinners 
and  weavers  still  work  13  hours  a  day  as  they  once  did  in 
England ;  France  has  only  come  down  to  12  hours  ;  whereas 


PERSONAL   SERVICES.  199 

the  English  rate  has  long  been  10  hours,  and  may  soon  be  9 
or  even  8.  And  this  reduction  improves  the  health  of  the 
wage-workers,  while  the  reduced  cost  of  production  allows 
them  higher  Wages;  yet  Grermany  with  its  long  hours  and 
high  tariff  maintains  a  system  OF  LOW  PAY,  DEAR  PRODUC- 
TION, HIGH  COST  OF  DISTRIBUTION,  AND  LIMITED  SALES." 

The  accuracy  of  these  important  statements  of  fact  is 
confirmed  on  every  hand.  Committees  of  British  spinners 
and  weavers  have  repeatedly  visited  the  United  States,  and 
then  reported  to  their  fellows  at  home,  that  wages,  all 
things  considered,  were  equal  for  spinners  and  weavers  in 
Great  Britain  and  the  United  States,  and  in  some  cases  and 
respects  higher  in  the  former.  Many  times  before  his  late 
lamented  death,  John  Bright  publicly  testified  that  wages 
in  England  during  his  parliamentary  life  had  risen  in 
general  50%,  and  in  some  of  the  manufacturing  lines  100%. 
A  few  months  before  these  statements  of  Chadwick  were 
made,  Sir  Richard  Temple  reported  to  his  section  of  the 
British  Association,  "  That  the  average  earnings  per  head  in 
the  United  Kingdom,  taking  the  whole  population  ivithout 
division  into  classes,  is  ,£35,  4s.,  and  exceeds  the  average  of 
the  United  States,  which  is  £Z7,  4s.,  and  of  Canada,  which 
is  £26,  18s.,  and  of  the  Continent,  which  is  <£18,  Is.;  while  it 
falls  below  that  of  Australia,  which  is  <£43,  4s.  per  head." 

According  to  this,  the  average  earnings  in  Great  Britain 
per  head  of  the  population  are  30%  higher  than  in  the 
United  States,  and  81  %  higher  than  on  the  Continent 
of  Europe.  Truly,  Britain  is  a  prosperous  and  profitable 
country  so  far  as  average  earnings  of  the  whole  people 
by  the  year  is  concerned.  Sir  Richard  goes  on  in  the 
same  statistical  paper  to  show,  that  the  average  annual 
profit  on  British  Capital  is  14%,  and  that  Capital  yields 
about  the  same  rate  for  the  United  States. 

Now,  can   we   easily  give   the   grounds   on  which  the 


200  PRINCIPLES   OF   POLITICAL   ECONOMY. 

introduction  of  more  and  better  machinery,  instead  of 
displacing  laborers,  tends  to  lift  and  actually  does  lift  the 
wages  of  those  concerned,  who  continue  to  work  with  their 
hands  and  heads  ?  We  will  try  it. 

(a)  It  takes  the  hands  and  heads  of  laborers  to  invent 
and  construct  and  keep  in  repair  the  machinery  itself,  that 
is    often   supposed  to  displace  laborers,  and  so  far  forth 
opens  a  vent  for  the  more  profitable  employment  of  some 
of  the  laborers,  who  before  performed  the  cruder  and  more 
repetitive    and   automatic   parts   of   the   processes,  which 
parts  alone  machinery  can  be  made  to  perform. 

(b)  Machinery  always  lessens  the  cost  of  a  given  amount 
of  production,  otherwise  there  would  be  no  motive  for  its 
introduction.     But,  other  things  being  equal,  the  lessened 
cost  of   a  commodity   broadens  the  market  for  its   sale. 
The  cheaper  a  useful  commodity  is  offered,  the  more  the 
buyers  of   it   the    world   over.     The   more    and   the   bet- 
ter the  machinery  brought  in,  the  more  and  the  cheaper 
the  commodities  produced  and  the  broader  and  better  the 
markets   to   be    supplied;    and,  therefore,  the    more    and 
the  more  skilful  the  hands  needed  to  tend  the  machinery 
and  to  market  the  products. 

(c)  The  more  commodities  thus  created   by  men   and 
machines,  and  the  wider  the  markets  found  for  them  over 
the  earth,  the  more  laborers  are  required   to  extract  and 
prepare   and    transport    the   raw   materials   for   the   now 
augmenting  commodities,  and  also  to  ship  and  distribute 
the  finished  products.     As  Chadwick  says,  notwithstanding 
the  strictly  factory  hands  have  diminished  one  half  in  one 
place,  "yet  the  mitt  population  has  increased,  as  well  as 
the  general  population,  the  hands  discharged  being  absorbed 
in  other  employments." 

(d)  These  improvements  in  machinery,  and  the  conse- 
quent refinements  in  the  skill  of  the  laborers,  cheapen  also 


PERSONAL   SERVICES.  201 

of  course  the  commodities  consumed  by  the  laborers 
themselves,  and  therefore  a  given  rate  of  wages,  to  say 
nothing  of  a  rate  sure  to  enlarge  under  these  circumstances, 
now  secures  for  the  laborers  a  higher  grade  of  comforts. 

More  and  better  and  more  durable  machinery,  conse- 
quently, so  far  forth,  tends  at  once  to  enhance  the  rate  of 
laborers'  wages  and  increase  the  purchasing  power  of  the 
unit  in  which  wages  are  paid. 

To  return  now  to  the  main  line  of  discussion  under  the 
present  head,  we  have  shown  by  proof  positive  that  there 
is  nothing  either  in  new  machinery  introduced,  or  in  higher 
wages  paid  in  connection  with  such  machinery,  or  in 
shortened  hours  made  possible  by  these  two,  to  lessen  the 
Demand  of  Capitalists  for  the  personal  services  of  Labor- 
ers ;  because,  there  is  nothing  in  all  these,  commercial  and 
industrial  freedom  being  presupposed,  to  lessen  the  Profits  of 
the  Capitalists,  which  profits  are  the  sole  motive  actuating 
them  as  such.  That  high  wages  and  short  hours  are  rather 
an  advantage  to  Profits  in  connection  with  skilled  laborers 
and  fine  machinery,  than  a  disadvantage  when  compared 
with  long  hours  and  low  pay  and  poor  implements,  is 
clearly  shown  by  Chad  wick  in  the  passage  quoted  comparing 
England  with  English  Bombay,  where  the  working  hours 
are  60%  more  and  the  wages  greatly  less  and  the  cost  of 
the  machinery  very  little;  "twenty  shillings'  worth  of 
bundled  yarn  may  be  produced  at  a  cost  of  from  2d.  to 
3c7.  less  in  Manchester  than  in  Bombay" ;  call  it  2£d.  less; 
that  is,  it  costs  the  Bombay  spinner  more  than  1%  per 
pound  of  yarn  more  to  spin  it  than  it  costs  the  Manchester 
spinner !  For  truth  and  decency's  sake,  then,  let  us  have 
done  with  the  gabble  in  this  country  about  the  advantages 
of  "  pauper  labor "  over  skilled,  of  low  wages  over  high, 
of  cheap  machinery  over  dear ! 

The  penetrating  reader  will  perceive,  that  the  root  of 


202  PRINCIPLES    OF   POLITICAL   ECONOMY. 

this  whole  matter  lies  in  the  breadth  and  quickness  of  the 
Markets,  in  which  the  commodities  produced  by  the  laborers 
and  capitalists  may  be  sold  against  other  commodities,  and 
against  Services  and  Credits ;  if  the  markets  of  the  world 
are  free  to  all  to  buy  in  and  to  sell  in,  which  seemingly  two 
things  are  precisely  one  and  the  same  thing,  then  the  De- 
mand of  Capitalists  for  the  services  of  laborers  to  create  and 
market  salable  commodities  wherever  these  may  be  wanted, 
can  apparently  never  slacken  on  the  whole  ;  because,  the  de- 
sires of  men  which  the  efforts  of  other  men  may  satisfy  com- 
mercially, are  indefinite  in  number  and  unlimited  in  degree  ; 
and,  therefore,  the  Wages  of  the  skilled  laborers,  the  com- 
mercial freedom  of  the  nations  being  presupposed,  are  likely 
to  be  on  the  whole  on  a  steady  rise  throughout  the  world ; 
and  the  amount  and  excellence  of  the  machinery  on  a 
similar  rise,  since  Capitalists  can  always  under  these  cir- 
cumstances see  their  Profits  looming  up  ahead  of  them,  — 
the  profits  of  an  endlessly  diversified  and  marketable  Pro- 
duction. 

The  chief  reason  at  any  rate,  and  almost  the  only  rea- 
son in  common  sight,  why  little  England  has  surpassed  in 
commercial  prosperity  of  every  sort  every  other  nation  on 
the  globe  during  the  past  forty  years,  as  evidenced  by 
these  statistics  of  Sir  Richard  Temple  and  other  abounding 
proofs  on  sea  and  land,  is  in  the  fact,  that  her  statesmen 
of  the  last  generation  came  to  perceive  clearly,  and  then 
helped  the  people  to  see,  that  a  market  for  products  is  prod- 
ucts in  market ;  that  her  traditional  tariff-barriers  to  keep 
foreign  goods  out  kept  in  equally  domestic  goods  that 
wanted  to  get  out  for  a  profit,  and  so  down  went  the  tariff- 
barriers  little  by  little,  accursed  alike  by  God  and  English- 
men, never  to  be  set  up  again  around  the  shores  of  the  land 
of  Cobden  and  Bright  and  Elliott ;  and  to-day  we  read,  that 
the  average  annual  Earnings  per  head  of  the  entire  popu- 


PERSONAL   SERVICES.  203 

lation  of  the  United  Kingdom,  men  and  women  and  chil- 
dren, English  and  Irish  and  Scotch,  are  $176,  while  the 
annual  average  Profits  of  Capital  within  the  three  king- 
doms is  14%. 

(3)  In  the  last  place  here,  we  must  now  look  at  the 
Demand  for  the  personal  services  of  Professional  laborers. 
These  are  persons,  who  have  done  something  more  with 
reference  to  their  life-work  than  serve  an  apprenticeship  to 
a  trade,  or  acquire  some  mechanical  skill  in  connection  with 
some  kind  of  machinery.  An  Education  rather  than  an 
Apprenticeship  is  implied  in  Professional  laborers.  Knowl- 
edge of  the  bodies  and  of  the  minds  of  men ;  acquaintance 
with  some  one  section  at  least  of  the  general  laws  that  per- 
vade the  universe ;  some  confidence  (the  more  the  better) 
in  God,  who  created  and  governs  the  world ;  are  all  requisite 
to  a  reasonable  success  on  the  part  of  Professional  laborers. 
The  Demand  for  their  services,  and  of  course  also  the 
Return  made  to  them  for  such  services,  will  largely  depend 
on  such  superior  knowledge  and  confidence  acquired  by 
such  persons,  and  involved  in  their  services.  Clergymen, 
physicians,  lawyers,  statesmen,  literators,  actors,  teachers, 
and  scientific  experts,  may  serve  as  our  chief  examples  of 
Professional  laborers. 

(a)  "All  that  a  man  hath  will  he  give  for  his  life." 
When  men  fall  sick,  or  those  fall  sick  who  are  dear  to  them, 
they  send  for  the  doctor.  Scarcely  any  trait  of  human 
nature  is  more  universal  than  this.  And  the  trait  puts 
honor  on  human  nature,  because  it  implies  a  relatively 
high  estimate  of  the  worth  of  life  in  the  mind  of  the 
patient,  and  also  a  relatively  high  confidence  in  a  certain 
class  of  one's  fellow-men.  As  Society  progresses,  and  as 
Christianity  deepens  the  sense  of  the  worth  of  the  indi- 
vidual life,  and  knits  a  stronger  tie  of  confidence  between 
man  and  man,  a  change  is  slowly  coming  over  the  rela- 


204  PRINCIPLES   OF   POLITICAL   ECONOMY. 

tions  between  physicians  and  their  patients ;  people  do  not 
wait  to  fall  sick  before  they  send  for  the  doctor,  so  much 
as  they  formerly  did;  some  individuals  and  families  are 
establishing  connections  with  a  medical  adviser,  who 
studies  their  constitutions  and  habits  of  life  beforehand, 
guides  them  in  general  sanitation,  and  thus  both  he  and 
they  are  better  ready  for  curatives  in  times  of  illness. 
Gladstone  has  long  had  such  an  attendant,  with  the  best  of 
results  as  he  thinks,  and  strongly  commended  such  action 
to  John  Bright,  but  too  late  to  save  the  latter  from  what 
was  thought  to  be  premature  death  in  consequence  of  im- 
prudent and  ill-advised  handling  of  his  health.  In  a  few 
cases  in  England  and  the  United  States  an  annual  salary 
is  paid  a  physician  for  general  care  of  the  family's  health, 
whether  sickness  befall  or  not,  instead  of  the  more  usual 
fees  on  consultation  and  attendance.  Dr.  Munii  of  New 
York  receives  such  an  annual  salary  from  Mr.  Jay  Gould. 
But  in  whatever  way  medical  services  are  paid  for,  the 
Demand  for  them  is  constant  and  intense.  The  motive  to 
buy  them  is  immediate  and  personal,  not  mediate  and 
remote,  as  in  the  case  of  capitalists  and  laborers  of  the 
second  class. 

It  is  to  be  noticed  further  in  respect  to  physicians,  and 
indeed  in  respect  to  all  professional  laborers  much  more 
than  in  respect  to  other  laborers,  that  much  knoAvledge 
has  been  gained  by  them  for  its  own  sake,  out  of  pure  love 
for  it,  rather  than  for  the  sake  of  merely  selling  their  ser- 
vices as  laborers ;  while  this  does  not  diminish  in  the  least 
the  commercial  character  of  their  services,  it  tends  to 
beget  on  the  part  of  the  buyers  of  them  a  stronger  confi- 
dence in  the  men  who  render  them,  so  that  the  Demand 
for  such  services  and  consequently  the  pay  for  them  is 
enhanced  by  the  trust  reposed  in  the  laborers  on  the  ground 
of  something  acquired  by  them  for  other  than  selling  pur- 


PERSONAL   SERVICES.  205 

poses,  and  which  indeed  cannot  be  sold ;  and  superior  char- 
acter also,  as  well  as  superior  knowledge,  which  is  wholly 
moral  in  its  basis  and  not  mercantile  at  all,  affects  the 
Demand  for  the  services  of  the  possessor  of  it  to  increase  it, 
on  the  ground  of  a  naturally  stronger  trust  in  him  as  a  pro- 
fessional laborer,  and  at  the  same  time  tends  to  increase 
his  Wages  by  limiting  the  circle  of  those  who  can  offer  in 
competition  such  services  on  the  background  of  such  supe- 
rior knowledge  and  character. 

(b)  Lawyers  do  not  meet  such  a  universal  Demand  in 
the  nature  of  things  as  do  physicians.  Said  Jonathan 
Smith  of  Lanesborough  in  the  Massachusetts  Convention 
of  1788 :  "  We  have  no  lawyer  in  our  town,  and  we  do 
well  enough  without."  Still,  one  hundred  years  after  that 
time  there  were  about  70,000  lawyers  in  the  United  States, 
and  Lanesborough  itself  had  had  in  the  meantime  at  least 
three  distinguished  ones.  The  interests  of  property  and 
of  reputation,  and  the  constitutional  rights  of  individuals 
as  over  against  the  claims  of  Government,  so  far  as  these 
may  be  conserved  through  the  agency  of  lawyers,  are  by  no 
means  so  constant  and  imperative  as  are  the  interests  of 
life  and  health.  Yet  lawyers  are  in  legitimate  request  in 
all  civilized  countries.  A  Latin  legal  maxim  announces 
the  obvious  truth :  It  is  the  interest  of  the  Commonwealth 
that  there  should  be  an  end  of  disputes  and  litigations. 
Beyond  question  courts  and  counsel  are  wholesome  on  the 
whole  for  the  individual  and  for  the  commonwealth.  But 
the  extremely  complicated  and  unsatisfactory  condition  of 
American  Law  at  present,  owing  to  the  fact  that  we  have 
a  none  too  simple  United  States  Law  with  its  three  grades 
of  courts  and  judges,  and  considerably  divergent  bodies  of 
Law  in  each  of  42  States,  and  owing  also  to  the  fact  that 
our  law  in  general  is  drawn  almost  at  random  from  two 
pretty  distinct  Sources,  the  Common  Law  of  England  and 


206  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  Civil  Law  of  Rome,  multiplies  the  number  of  lawyers 
relatively  to  the  population  out  of  all  proportion  to  such 
ratio  in  other  countries,  and  tends  to  make  the  lawyers  as 
a  class  too  conservative  of  old  and  drawn-out  processes  to 
the  extent  of  opposing  obvious  betterments  and  simplifica- 
tions. Said  David  Dudley  Field,  President  of  the  Ameri- 
can Bar  Association,  in  August,  1889,  at  Chicago:  "So 
far  as  I  am  aware,  there  is  no  other  country  calling  itself 
civilized  where  it  takes  so  long  to  punish,  a  criminal,  and  so 
many  years  to  get  a  final  decision  between  man  and  man. 
Truly  we  may  say,  that  Justice  passes  through  the  land  on 
leaden  sandals.  One  of  our  most  trustworthy  journalists 
asserts  that  more  murderers  are  hung  by  mobs  every  year 
than  are  executed  in  course  of  law.  And  yet  we  have,  it  is 
computed,  nearly  70,000  laivyers  in  the  country.  The  pro- 
portion of  the  legal  element  is,  in  France,  1 :  4762  ;  in  Ger- 
many, 1 :  6423  ;  in  the  United  States,  1 :  909.  Now  turn 
from  the  performers  to  the  performance.  It  appears  that 
the  average  length  of  a  lawsuit  varies  very  much  in  the  dif- 
ferent States  ;  the  greatest  being  about  6  years,  and  the  least 
1J.  Very  few  States  finish  a  litigation  in  this  shorter  period. 
Taking  all  these  figures  together,  is  it  any  wonder  that  a  cynic 
should  say  that  we  American  lawyers  talk  more  and  speed 
less  than  any  other  equal  number  of  men  known  to  history  ?  " 

Mr.  Field  then  repeated  his  well-known  argument  for 
Codification,  ascribing  the  law's  delays  to  the  chaotic  con- 
dition of  the  law,  and  maintaining  that  it  is  the  first  duty 
of  a  government  to  bring  the  laws  to  the  knowledge  of 
the  People.  "  You  must,  of  course,  be  true  to  your  clients 
and  the  courts,  but  you  must  also  give  speedy  justice  to  your 
fellow-citizens,  more  speedg  than  you  have  yet  given,  and  you 
must  give  them  a  chance  to  know  their  laws." 

Owing  to  the  immense  difficulties  in  the  way  of  any 
one  person  mastering  the  various  branches  of  the  law  in 


PERSONAL   SERVICES.  207 

this  country,  it  is  falling  more  and  more  into  specialties, 
and  lawyers  are  devoting  themselves  to  some  one  of  its 
many  branches,  the  main  division  line  being  between 
"Law"  and  "Equity"  technically  so-called;  and  when- 
ever one  becomes  eminent  along  any  line,  his  compensation 
is  apt  to  be  very  large  owing  at  once  to  a  large  Demand 
and  to  a  small  Supply  at  that  point,  while  the  average 
compensation  of  the  lawyers  as  a  whole  class  is  meagre 
enough,  because  there  are  too  many  of  them,  and  the  peo- 
ple have  become  very  suspicious  of  the  law's  meshes  and 
delays. 

(c)  The  grounds  for  the  unabating  Demand  in  Christian 
countries  for  religious  teachers  and  preachers,  let  us  rather 
say,  for  spiritual  guides,  lie  deep  down  in  the  nature  of 
man.  If  there  be  one  proposition  about  men  more  incon- 
testable than  another,  it  may  be  this,  that  men  are  made  in 
the  image  of  God,  and  that  there  is  among  men  in  general 
an  irrepressible  striving  to  maintain  and  deepen  this  image. 
The  touch  between  man  and  man  and  between  man  and 
God  is  such  at  this  point,  that  men  can  help  each  other  in 
this  striving,  and  that  they  feel  that  they  can  help  each 
other.  This  is  the  chief  reason  why  some  men  are  con- 
stantly consecrating  themselves  to  the  Christian  ministry, 
and  other  men  as  constantly  soliciting  these  to  become 
their  pastors  and  teachers.  Those  more  enlightened  in 
divine  things  and  more  spiritually  minded  offer  themselves, 
as  it  were,  not  commercially  but  morally,  to  the  unenlight- 
ened and  less  advanced  as  guides  and  helpers.  It  is,  as  it 
was  with  Wolfe  and  his  men  at  the  Heights  of  Abraham : 
those  who  got  first  to  the  top  tarried  a  little  to  help  those 
up  who  came  after.  And  the  most  striking  thing  about  it 
is,  that  the  masses  of  men  at  bottom  are  as  desirous  to  be 
uplifted  as  the  choicer  spirits  among  them  are  desirous  to 
help  the  work  forward.  Ministers  are  still,  and  always 


208  PRINCIPLES   OF   POLITICAL  ECONOMY. 

will  be  (human  nature  is  unchangeable),  eagerly  called ; 
chapels  and  churches  and  cathedrals  are  still  going  up  all 
over  the  earth;  worship  and  petition  and  aspiration  are 
ever  ascending  on  the  great  world's  altar  stairs  towards 
heaven,  guided  and  inflamed  by  the  chosen  and  choosing 
men  of  God,  —  "when  priests  on  grand  cathedral  altars 
praise  !  " l 

It  is  a  monstrous  perversion  of  language  to  maintain, 
that  a  clergyman  in  rendering  such  services  as  these  is 
selling  his  religion.  It  is  true,  that  he  is  selling  under 
Demand  services  to  the  appropriate  rendering  of  which 
his  own  personal  piety  contributes  one  large  element,  and 
thorough  confidence  in  him  on  the  part  of  his  people  as  a 
good  'and  earnest  man  contributes  another  large  element ; 
but  the  piety  and  the  spiritual  power  and  the  worthy  ex- 
ample are  not  nourished  for  the  sake  of  selling  the  services, 
but  for  their  own  sake  in  personal  worth  and  worthiness, 
and  these  things  must  not  be  confounded  with  the  services 
that  are  sold.  Accordingly,  while  the  clergyman's  vocation 
is  sacred,  and  belongs  to  the  sphere  of  religion,  his  salary 
belongs  to  the  sphere  of  exchange,  and  its  determination, 
in  harmony  of  course  with  the  higher  impulses,  is  a  busi- 
ness transaction.  This  distinction  ought  to  be  better 
understood  than  it  is;  and  both  clergymen  and  people 
need  to  be  reminded  that  the  spiritual  things  belong  to 
one  sphere,  and  the  temporal  things  to  another.  The 
amount  of  a  minister's  salary,  and  the  time  and  mode  of 
its  payment,  are  matters  of  pure  business ;  and  the  minis- 
ter himself  is  to  be  blamed  if  he  does  not  attend  to  them, 
and  insist  on  them,  on  business  principles. 

In  the  professions  generally,  and  particularly  in  the 
ministerial  profession,  while,  if  we  confine  our  attention  to 
those  persons  who  both  have  the  requisite  gifts  of  Nature 

i  O'Reilly's  Poem,  at  Plymouth,  1889, 


PERSONAL   SERVICES.  209 

and  have  been  also  thoroughly  trained,  we  shall  find  a  high 
rate  of  compensation  011  the  two  grounds  of  a  strong 
Demand  and  a  limited  Supply,  we  must  bear  in  mind  too 
the  counter- working  influences  which  tend  to  increase  the 
competition  and  thus  decrease  the  compensation,  namely, 
the  respectability  which  attends  them,  the  desire  of  knowl- 
edge for  its  own  sake  which  is  gained  in  connection  with 
them,  the  instruction  wholly  or  in  part  gratuitously  offered 
to  those  in  course  of  preparation  for  them,  and  the  desire 
to  do  good  without  regard  to  pecuniary  reward  which 
actuates  many  who  enter  upon  them. 

(d)  Physicians  and  lawyers  and  clergymen  serve  pri- 
marily individuals,  or  at  most  relatively  small  groups  of 
individuals,  and  of  course  look  for  their  pay  to  those  whom 
they  have  served.  It  is  different  with  Statesmen,  the 
fourth  class  of  professional  laborers  that  we  need  to  look 
at  in  an  economic  view.  Statesmen  worthy  of  the  name 
serve  at  least  a  whole  nation,  and  to  the  nation  as  such 
must  they  turn  for  their  pecuniary  rewards.  And  such 
men  have  never  turned  in  vain  to  those  whom  they  have 
benefited  as  a  whole.  Bismarck  is  the  best  modern  instance 
of  a  Statesman,  who  has  received  from  a  grateful  coun- 
try immense  money-measured  remunerations  for  immense 
political  sevices  rendered.  The  Demand  for  the  services 
of  Statesmen  rests  in  the  deep  consciousness  of  men 
organized  politically  into  a  Nation,  that  they  need,  espe- 
cially in  trying  times,  a  Man  of  the  highest  natural  gifts, 
and  of  the  broadest  attainments  and  of  the  loftiest  polit- 
ical integrity  to  plan  and  act  for  them  in  emergencies,  as 
they  are  conscious  that  they  cannot  plan  and  act  for  them- 
selves organically.  This  does  not  mean,  that  the  one 
ever  knows  essentials  better  than  the  many :  he  does  not. 
This  does  not  mean,  that  the  true  objective  of  a  nation's 
march  is  ever  discerned  more  clearly,  or  rather  felt  after 


210  PRINCIPLES    OF   POLITICAL   ECONOMY. 

more  eagerly,  by  one  man  than  by  the  many  men  con- 
cerned :  it  is  not.  Still  less  does  it  mean  "  a  man  on  horse- 
lack"  But  it  does  mean  this :  a  Nation  (as  the  very 
name  implies)  is  made  up  of  the  thoughts  and  hopes  and 
throbbings  and  dim  forecastings  and  half -formed  purposes 
of  multitudes  constituting  a  unit  (born  together  for  one 
destiny  on  earth)  ;  and  the  true  Statesman  is  one  of  them- 
selves, sharing  with  them  at  once  the  traditions  of  the  past 
and  the  perspectives  of  the  future ;  one,  with  the  instinct 
and  the  intellect  to  gather  up  and  embody  the  general 
feeling  and  the  general  will ;  one,  who  has  gained  in  some 
way  the  confidence  of  the  masses  who  are  willing  for  the 
time  being  to  entrust  to  him  the  guidance  of  their  affairs, 
and  to  empower  him  to  plan  and  act  for  them  as  their 
champion  and  deliverer ;  and  one,  who  (because  he  is  one) 
can  better  seize  the  propitious  moments  for  declaration  and 
negotiation  and  public  action,  yet  who  never  forgets  that 
he  is  nothing  but  an  agent  for  others,  and  is  as  ready  to 
lay  down  responsibility  at  the  public  will  as  to  assume  it 
at  the  public  will. 

Washington  was  such  a  statesman,  and  Lincoln.  Even 
Bismarck,  under  monarchical  and  later  imperial  environ- 
ment, disclaims  anything  substantive  and  original  in  his 
own  action :  he  did  what  he  could  not  help  doing :  he 
followed  the  instincts  of  Prussia,  and  his  own ;  and  became 
the  means  of  fulfilling  as  they  gradually  ripened  the  long- 
ings of  the  other  German  people  for  unity  and  order. 
Such  a  statesman  was  Chatham  in  England,  and  Cavour 
in  Italy.  Now,  such  services  as  these,  done  for  a  whole 
people,  always  deserve  and  usually  receive,  though  not 
expressly  bargained  for  beforehand,  yet  implied  in  the 
public  devotion  of  one  party  and  the  general  consensus  of 
the  other,  extraordinary  honors  and  emoluments.  This  is 
right,  even  on  purely  Economic  principles.  The  services 


PERSONAL   SERVICES.  211 

of  great  statesmen  to  their  country  in  great  epochs  and 
emergencies  are  at  once  a  gift  and  a  sale,  they  are  both 
patriotic  and  economic,  there  is  equally  a  national  Demand 
for  them  and  a  grateful  recognition  of  them,  the  Supply  is 
always  exceedingly  rare  and  the  reward  often  exceedingly 
great ;  and  it  is  to  be  put  down  to  the  lasting  credit  of 
the  science  of  Economics,  that  its  peculiar  motives  and 
results  may  mingle  in  and  harmonize  with  the  motives  and 
results  of  the  higher  moral  impulses,  such  as  those  of 
Patriotism  and  Religion,  as  in  the  cases  of  the  Soldier  and 
Statesman  and  Clergyman.  There  was  no  rational  ground 
for  the  hesitation  of  Garibaldi  to  receive  from  the  Par- 
liament of  Italy  in  1875  an  annual  pension  of  50,000  lire. 

(e)  There  is  a  single  class  more  of  Professional  laborers, 
loosely  so-named,  which  should  be  noted  before  we  dismiss 
the  subject  of  Demand  for  laborers  to  pass  to  consider  the 
Supply  of  them,  namely,  Literators  and  Artists  and  Actors 
of  the  highest  rank.  Statesmen  primarily  serve  the  indi- 
vidual nation  that  selects  and  rewards  them,  though  their 
influence  may  indirectly  uplift  other  nations  also ;  but  the 
great  Writers  and  Painters  and  Actors,  whatever  may  be 
their  local  habitation  and  name  at  first,  soon  come  to 
belong  to  the  world  at  large  and  to  derive  their  revenue 
from  many  lands,  because  the  highest  Art  is  cosmopolitan 
in  its  own  nature,  and  the  best  characterization  of  men  as 
such  cannot  but  be  the  property  of  Mankind.  Shak- 
speare  is  no  longer  English,  nor  Angelo  Italian,  nor  Mozart 
German,  nor  even  Bernhardt  French.  Deep  as  are  the 
scars  and  the  sea  that  separate  nation  from  nation,  there 
is  something  deeper  still  in  the  innate  recognition  by  man 
of  man  as  depicted  by  the  great  Masters  in  immortal  lines. 
There  is,  accordingly,  a  sort  of  Demand  in  the  inmost  soul 
of  Humanity  as  such  for  these  living  and  lofty  touches  and 
delineations  of  itself,  whencesoever  they  may  come.  There 


212  PRINCIPLES   OF   POLITICAL   ECONOMY. 

is  not  indeed  nor  can  there  be,  as  in  most  other  cases  of 
sale,  a  bargain  made  beforehand  between  these  preordained 
sellers  of  the  rarest  services  and  their  silent  yet  waiting 
purchasers,  yet  there  is  after  all  an  antecedent  and  an 
assured  understanding  between  them.  They  are  in  touch 
even  across  the  sea.  The  master  strikes  his  chord,  and 
the  audience,  fit,  though  few  and  scattered,  listens  and 
applauds  and  makes  return. 

Is  the  principle  of  "  International  Copyright,"  so-called, 
correct  ?  Let  us  look  narrowly  before  we  pronounce.  At 
present  this  good  country  of  ours  makes  itself  a  mocking 
and  a  by-word  even  to  its  own  intelligent  and  art-lov- 
ing citizens  by  putting  a  tariff-tax  of  30%  on  paintings 
and  statuary  by  foreign  artists,  not  at  all  to  get  revenue 
thereby,  but  to  "  protect "  domestic  artists  in  their  inferior 
work  by  artificially  lifting  the  price  of  their  wares.  So  far 
is  carried  this  jealousy  of  foreign  works  of  art,  that  when 
the  artists  generously  loan  them  for  exhibition  on  our 
national  occasions,  they  are  put  under  bonds  not  to  sell 
them  on  this  side  without  previously  paying  the  tariff-tax, 
which  is  graciously  intermitted  during  the  Exposition. 
This  is  Restriction.  This  is  Protectionism  pure  and  sim- 
ple. This  is  legally  excluding  the  Better  in  order  to  give 
a  forced  currency  to  the  Worse.  Now,  domestic  Copy- 
right restricts  the  sale  of  any  book  to  one  publisher  in  his 
interest  and  in  that  of  the  author.  The  book  now  in  the 
reader's  hand  is  thus  copyrighted.  This  legal  arrange- 
ment between  authors  and  publishers  and  their  public  may 
be  perhaps  logically  defended,  it  may  even  be  for  the 
public  weal  on  the  whole,  though  in  many  cases  it  doubt- 
less raises  the  price  of  good  books,  which  would  have  been 
published  without  any  such  artificial  encouragement.  The 
copyright,  however,  like  all  patent-rights  also,  soon  expires 
by  limitation  of  time,  and  the  public  thereafter  have  the 
unrestricted  use  of  what  is  really  their  own. 


PERSONAL   SERVICES.  213 

For  what  is  sometimes  called  "  literary  property  "  is  not 
property  in  the  strict  sense  of  the  word.  A  book  is  not 
like  a  plough  or  a  house.  Its  contents  even  when  most 
original  have  been  but  colored,  as  it  were,  and  rearranged 
and  reinforced  by  the  author's  individual  mind.  Its  sub- 
stance always  comes  out  of  the  common  stock.  It  cannot 
be  the  author's  own,  as  the  bushel  of  wheat  is  the  farmer's, 
who  sowed  the  seed  on  his  own  land  and  threshed  it  in 
his  own  barn  and  carried  it  to  market  in  his  own  wagon. 
The  rights  of  the  individual  and  the  rights  of  the  Com- 
munity commingle  more  or  less  in  private  property  of 
every  kind,  at  least  to  the  extent  that  the  latter  may  tax 
the  property  if  needful  for  the  common  wellbeing,  as  it  is 
bound  also  legally  to  secure  it  to  the  owner  when  threat- 
ened by  others ;  it  is  no  part  of  the  purpose  of  the  present 
book  to  draw  the  wavering  line  in  general  between  the 
rights  of  individuals  and  the  rights  of  their  Government 
as  towards  them ;  but  the  distinction  between  common 
property  and  copyrighted  property  is  plain  enough  to 
everybody,  and  the  Law  puts  emphasis  on  the  distinction 
by  making  the  one  quickly  terminable  and  the  other  con- 
tinual. So  then,  when  the  Government  under  which  the 
author  resides,  has  given  him  a  limited  copyright  within 
its  own  jurisdiction,  it  would  seem  as  if  the  individual 
right  in  the  premises  had  been  sufficiently  recognized 
alongside  of  the  undoubted  right  of  the  Whole  to  the 
ultimate  use  of  the  labors  of  their  own  citizen. 

When,  however,  it  comes  to  International  Copyright, 
which  is  an  attempt  to  secure  to  authors  of  one  country 
artificial  privileges  under  restriction  in  selling  their  wares 
in  all  other  countries,  the  argument  breaks  down.  Even 
for  the  one  country,  in  which  the  author  lives  and  is  tax- 
able, the  argument  is  not  very  strong,  and  hardly  binds 
advanced  public  opinion  either  as  to  the  grounds  of  it  or 


214  PRINCIPLES    OF   POLITICAL   ECONOMY. 

even  the  practical  benefits  of  it  on  the  whole.  By  the 
attempted  extension  of  it  to  all  countries,  its  reasonable- 
ness disappears.  Taxation  cannot  extend  beyond  the 
jurisdiction  of  the  country  taxing ;  and  it  certainly  seems 
as  if  a  legal  privilege,  beyond  common  law  privileges, 
ought  not  by  extension  through  the  formal  action  of  other 
countries  to  exempt  from  taxation  (in  case  it  were  need- 
ful) the  results  of  the  original  privilege.  The  purpose 
of  International  Copyright  is  not  the  blessed  one  as  an- 
nounced to  the  world  by  James  Smithson,  "the  increase 
and  diffusion  of  knowledge  among  mankind"  but  directly 
and  artificially  by  means  of  legal  restrictions  the  "increase  " 
of  the  prices  of  books  and  of  other  "knowledge"  to  the 
masses  of  "  mankind,"  and  the  "  diffusion  "  of  these  extra 
prices  as  between  authors  and  publishers.  Protectionism 
does  not  seem  to  be  one  whit  more  respectable  in  this 
form  than  in  the  form  of  tariff-taxes  on  foreign  works  of 
art. 

2.  We  have  already  seen  in  our  first  chapter  the  proofs 
of  the  proposition,  that  the  Value  of  anything  whatsoever 
bought  and  sold  is  determined  by  the  Demand  for  it  and 
the  Supply  of  it  then  and  there  present.  Also  we  have 
now  seen  at  considerable  length  the  main  phases  and 
grounds  of  the  Demand  for  each  of  the  three  classes  of 
Personal  services  bought  and  sold  among  men.  The  next 
topic  in  order  is  the  Supply  of  personal  services  in  the 
various  markets.  Here  it  will  not  be  necessary  to  distin- 
guish particularly  the  three  classes  of  Services,  inasmuch 
as  the  circumstances  governing  the  Supply  in  each  are 
substantially  similar. 

In  Economics  generally  we  have  to  deal  chiefly  with 
Persons,  and  only  subordinately  with  Things;  when  we 
come  to  the  Supply  of  personal  services,  answering  to 
the  Demand  for  them  on  the  part  of  other  persons,  this 


PERSONAL   SERVICES.  215 

point  becomes  conspicuous ;  and  it  is  here,  if  anywhere, 
within  the  realm  of  our  science,  that  we  need  to  devote 
a  word  to  a  singular  doctrine,  that  has  been  famous 
for  nearly  a  century  under  the  term  of  Malthus  ianism. 
Thomas  Robert  Malthus,  1766-1836,  was  an  English 
clergyman  and  teacher,  a  wide  traveller  and  keen  observer 
of  men,  one  who  divided  his  time  during  a  long  life 
between  cure  and  chair  and  the  libraries  of  the  Univer- 
sities, published  in  1798  his  "  Essay  on  the  Principles  of 
Population  as  it  affects  the  Future  Improvement  of  Society"  ; 
in  this  and  in  subsequent  editions  enlarged  and  enriched, 
he  brought  out  with  its  proofs  the  core  of  his  startling 
pronouncement,  that  the  human  race  is  found  to  increase 
in  numbers  in  something  like  geometrical  progression, 
while  the  means  of  subsistence  for  them  on  any  given 
area  of  agriculture  can  only  increase  in  something  like 
arithmetical  proportion ;  the  United  States  was  then  doub- 
ling its  population  in  25  years,  and  he  calculated  that,  at 
this  rate,  the  inhabitants  of  any  country  in  five  centuries 
would  increase  to  above  a  million  times  their  present 
number,  which  would  give  England  in  that  time  more 
than  twenty  million  millions  of  people,  or  more  than 
could  even  get  standing-room  there;  for  this  natural  ten- 
dency of  the  law  of  human  fecundity  to  outstrip  the  results 
of  the  law  of  returns  from  land,  he  saw  no  remedy  except 
in  checks  to  population,  which  he  divided  into  the  positive 
and  the  preventive,  the  first  of  which,  such  as  war  and 
famine  and  disease,  increase  the  annual  number  of  deaths ; 
and  the  second  of  which,  such  as  prudence  in  contracting 
marriage  and  temperance  after  marriage,  diminish  the 
number  of  births ;  and  Malthus  and  his  followers,  among 
whom  the  famous  Thomas  Chalmers  was  prominent,  were 
at  great  pains  to  inculcate  upon  the  laboring  classes  the 
duty  of  later  marriages  and  fewer  children,  as  an  indis- 


216  PKINCIPLES    OF   POLITICAL   ECONOMY. 

pensable  condition  of  their  rise  in  comforts,  and  of  "  the 
future  improvement  of  Society." 

These  discussions  have  attracted  great  attention  almost 
to  the  present  day,  and  have  been  supposed  to  be  very 
pertinent  to  the  subject  of  wages,  and  thus  to  be  an 
important  part  of  Political  Economy ;  but  when  one  looks 
more  closely,  the  force  of  that  spring  of  population  which 
the  Creator  has  coiled  up  in  the  nature  of  man,  as 
contrasted  with  the  weakness  of  that  power  by  which  the 
earth  brings  forth  sustenance  for  man,  is  seen  to  be  a 
topic  in  Physiology  and  not  in  Political  Economy  at  all. 
Political  Economy  presupposes  the  existence  of  Persons 
able  and  willing  to  make  exchanges  with  each  other,  before 
it  even  begins  its  inquiries  and  generalizations.  How  they 
come  into  existence,  the  rate  of  their  natural  increase,  and 
the  ratio  of  this  increase  to  the  increase  of  food,  however 
interesting  as  physiological  questions,  have  clearly  nothing 
to  do  with  our  Science.  Each  adult  human  being  is  as 
much  constituted  by  Nature  to  receive  personal  services  as 
to  render  them,  in  Economics  each  without  exception 
receives  when  and  because  he  renders,  and  all  alike  are 
naturally  able  to  become  capitalists  also ;  economical  laws 
present  no  obstacles,  that  we  can  see,  to  all  men  becoming 
rich,  as  we  use  that  term;  the  town  or  city  in  which  many 
people  are  growing  rich  simultaneously,  is  the  best  place  in 
the  world  for  other  people  to  go  to  get  rich  in,  and  not  at  all 
towns  in  which  other  people  are  getting  poorer ;  most  men 
are  unwilling,  some  perhaps  may  be  unable,  to  fulfil  the 
moral  conditions  of  growing  rich;  while,  we  may  depend 
upon  it,  the  famines  of  the  world  have  been  caused  more 
by  the  indolence  and  want  of  foresight  of  individuals,  and 
especially  by  the  monstrous  maladministrations  of  Govern- 
ments, than  by  any  law  of  the  increase  of  population. 

Experience  too  has  shown,  that  the  strong  impulse  in 


PERSONAL  SERVICES.  217 

mankind  towards  procreation  is  not  too  strong  for  the 
purpose  intended  by  the  Creator;  that  HE  who  is  the 
author  of  the  impulses  is  author  also  of  natural  counter- 
workings  of  them;  that,  as  men  under  moral  and  religious 
training  come  more  and  more  under  the  influence  of  reason 
and  affection,  the  preventive  checks  to  population  come 
silently  and  effectually  into  operation;  and  that,  taking 
the  world  at  large,  food  and  comforts  have  more  than  kept 
pace  with  the  stride  of  population,  since  its  inhabitants  as 
a  whole  were  plainly  never  so  well  fed  and  clothed  and 
housed  as  now.  The  abstract  antagonism  of  the  law  of  the 
increase  of  population  with  the  law  of  the  increase  of  food, 
or  what  we  prefer  to  call  the  law  of  diminishing  returns 
from  Land,  may  be  admitted,  if  one  chooses  to  insist  on  it ; 
but  any  practical  tendency  of  these  to  come  into  collision, 
as  the  world  is  and  is  to  be,  is  confidently  denied.  When 
Malthus  wrote,  and  long  afterwards,  England  was  under 
the  dominance  of  Protectionism ;  the  wretched  Corn-laws 
forbidding  the  importations  of  foreign  grain,  in  order  that 
the  domestic  growers  might  sell  to  their  countrymen  at 
artificial  prices,  and  thus  grow  the  richer  as  bread  became  the 
dearer,  were  only  repealed  in  1846;  and  the  demonstrated 
ability  of  Great  Britain  under  free  trade  to  draw  on  the 
fertility  of  the  whole  world  for  the  steadily  and  increasingly 
cheap  maintenance  of  her  people,  demonstrates  the  irrele- 
vancy of  Malthusianism  to  the  Science  of  Economics. 

The  Supply  of  personal  services  at  any  time  or  place  in 
answer  to  the  Demand  for  them,  is  affected  by  several 
important  circumstances,  which  we  shall  now  proceed  to 
consider  in  their  order. 

(a)  The  agreeableness  or  disagreeableness  of  rendering  a 
given  set  of  services  will  affect  the  Supply  of  laborers  at 
that  point,  and  help  to  determine  the  rate  of  Wages  paid 
to  them ;  because  the  more  agreeable  employment  will 


218  PRINCIPLES   OF   POLITICAL   ECONOMY. 

attract  the  larger  number  of  laborers,  will  experience  in 
consequence  the  press  of  competition,  and  the  rate  of  wages 
then  and  there  will  be  lessened  thereby.  The  more  dis- 
agreeable employment  will  feel  less  the  pressure  of  num- 
bers, and  will  secure,  other  things  being  equal,  a  higher 
rate  of  remuneration  in  consequence.  Among  the  elements 
which,  in  spite  of  diversity  of  tastes,  make  any  employment 
agreeable  or  disagreeable  to  the  laborers,  are  (1)  the  less  or 
greater  exertion  of  physical  strength  required,  (2)  the 
healthfulness  or  urihealthfulness  of  the  service,  (8)  its 
cleanliness  or  dirtiness,  (4)  the  degree  of  liberty  or  con- 
finement in  it,  (5)  the  safety  or  hazard  of  the  employment, 
(6)  the  esteem  or  disrepute  of  it  in  public  opinion.  To 
illustrate  each  of  these  in  order,  the  stone-mason,  the  glass- 
blower,  the  scavenger,  the  factory  operative,  the  worker  in 
a  powder-mill,  the  smuggler,  will  each  receive  a  larger 
compensation  owing  to  the  peculiar  element  of  disagree- 
ableness  involved  in  his  own  personal  service  ;  and  he  will 
be  able  to  demand  and  secure  the  higher  rate  through  the 
action  of  this  disagreeableness  upon  the  Supply  of  such 
laborers.  Of  all  these  elements,  public  opinion  is  per- 
haps the  most  operative ;  and  if  this  be  favorable  to 
an  employment,  and  some  social  consideration  be  attached 
to  it,  and  only  common  qualifications  be  required  for 
it,  the  wages  in  it  will  infallibly  be  low.  This  is  doubt- 
less the  main  reason  why  so  many  young  women  prefer 
to  teach,  rather  than  be  employed  in  mills  or  shops  or 
offices,  and  why  the  Avages  of  female  teachers  have  been 
so  remarkably  low ;  although  each  of  the  elements  of  agree- 
ableness  specified  above  may  also  contribute  something 
towards  the  same  result.  If  a  business  be  decidedly  op- 
posed to  public  opinion,  it  must  hold  out  the  inducement 
of  a  large  reward,  or  nobody  will  engage  in  it.  This 
explains  the  abnormal  gains  of  the  slave-trade,  the  liquor- 
business,  of  gambling-houses,  and  of  lotteries. 


PERSONAL   SERVICES.  219 

(b)  The  easiness  or   difficulty   of    learning   to   render 
acceptably  a  given  set  of  personal  services,  will  have  a 
quick  and  constant  influence  on  the  Supply  of  these  ser- 
vices, and  of  course  also  on  the  rate  of  the  return  paid  for 
them.     The  elements  of  this  Difficulty  in  general  are  time, 
expense,  lack  of    natural  gifts,  want  of   foresight  on  the 
part  of  those  concerned,  and  lack  of  push  and  persistency 
on  the  part  of  the  learner  himself.     To  put  a  boy  appren- 
tice to  a  trade,  for  example,  requires  on  the  part  of  the 
parents  a  foresight,  an  ability  to  get  on  without  his  imme- 
diate help,  and  sometimes  also  an  amount  of  money  for  his 
board  and  clothes  which  all  parents  do  not  possess ;  many 
boys  too,  who  must  acquire  their  skill  to  sell  personal  ser- 
vices when  they  are  young,  if  at  all,  find  on  trial  that  they  do 
not  like  the  trade,  or  have  not  the  requisite  gifts,  or  fail  in 
the  appropriate  patience  and  propulsion ;  and  the  conse- 
quence is,  that  the  Supply  of  laborers  along  that  particular 
line  is  lessened,  and  the  right  to  demand  and  the  ability  to 
secure  a  higher  rate  of  wages  than  is  accorded  to  common 
laborers  accompany  the  small  supply,  through  the  reduction 
of  numbers  which  these  obstacles  at  the  entrance  occasion 
and  the  consequent  weakness  of  competition.     This  is  one 
principal  ground  of  the  difference  in  the  wages  of  skilled 
and  unskilled  laborers ;  the  other  being,  as  we  have  seen, 
the  stronger  and  more  constant  Demand  for  the  former, 
owing   to   the   impulse   imparted   by  Capital.     All  these 
points  of  difficulty  at  the  outset  apply  still  more  strongly 
in  the  case  of  professional  laborers,  serving  more  effectually 
to  thin  out  the  ranks  of  these,  and  pushing  upward  still 
higher  the  gauge  of  compensation  for  the  successful  com- 
petitors. 

(c)  The  constancy  or  inconstancy  of  prospective  employ- 
ment in  a  given  business,  is  a  consideration  that  affects 
the  Supply  within  it,  and  then  the  wages.     If  the  services 


220  PRINCIPLES   OF   POLITICAL   ECONOMY. 

be  of  such  a  character,  that  they  can  only  be  carried  on 
during  nine  months  of  the  year,  the  wages  of  the  renderers 
will  be  greater  by  the  day  or  the  month  than  they  would 
be,  provided  the  services  were  in  order  during  all  the 
twelve  months.  The  laborer  is  apt  to  look  at  the  aggre- 
gate earnings  of  the  year,  and  will  hardly  take  up  a  trade 
which  affords  employment  but  a  part  of  the  time,  unless 
some  compensation  can  be  found  in  the  higher  wages  for 
that  time.  This  is  the  chief  reason  why  the  wages  of  the 
mason  and  house-painter,  in  this  climate  at  least,  are 
higher  than  those  of  the  blacksmith  and  carpenter.  The 
coachman,  also,  may  stand  by  his  horses  half  the  day  or 
night  with  no  call  for  his  services,  and  must  have,  there- 
fore, a  proportionably  higher  fare  from  those  whom  he 
does  transport.  In  general,  it  is  found  that  men  prefer  a 
constant  rendering  with  a  lower  rate  of  pay,  than  an  incon- 
stant one  with  a  prospect  of  larger  wages  for  the  particular 
jobs  actually  done ;  and  because  the  many  prefer  that, 
those  who  take  up  with  the  other  are  able  to  secure  a 
higher  relative  rate  of  pay  in  their  less  eligible  vocation. 
It  must  be  noticed,  however,  as  counterworking  this,  that 
some  men  have  desire  for  intervals  of  leisure  in  their  busi- 
ness, and  for  opportunity  to  make  these  intervals  subser- 
vient to  some  avocation  or  other  means  of  livelihood. 

(d)  The  probability  of  success  or  the  opposite  in  any 
line  of  personal  services,  is  a  circumstance  that  has  some 
influence  on  the  rate  of  wages  paid  in  it,  through  the 
action  of  this  probability  on  the  numbers  of  those  who 
enter  upon  it.  If  ultimate  success  be  doubtful,  fewer  per- 
sons will  naturally  engage  in  such  a  business,  and  those 
who  dare  in  it  and  succeed,  will  probably  reap  a  very  high 
reward.  So,  also,  those  who  take  jobs  by  the  contract,  and 
therein  assume  more  or  less  of  risk,  are  commonly  paid  at  a 
higher  rate  for  their  services  than  those  who  do  similar 


PERSONAL   SERVICES.  221 

work  by  the  day.  It  is  true,  that  this  is  owing  partly  to 
the  fact  that  the  contractor  usually  puts  in  his  own  capital 
more  or  less,  and  must  therefore  be  paid  profits  as  well  as 
wages,  and  also  that  the  wages  of  superintendence  are  due 
to  him  in  addition  to  ordinary  wages ;  still,  there  is  a  resid- 
uum of  difference,  which  can  only  be  accounted  for  by 
the  risk  he  runs  of  a  successful  issue  of  his  contract.  The 
general  variation  in  Supply  and  wages  from  this  fourth 
cause,  would  certainly  be  greater  than  it  is,  were  it  not  for 
the  overweening  confidence  which  men  in  all  generations 
seem  to  have  in  their  own  good  luck.  This  excess  of 
worldly  faith  is  always  seen  in  the  rush  which  is  made  for 
newly  discovered  mining  regions.  It  was  seen  to  perfec- 
tion in  1889  in  the  uncontrollable  advance  of  thousands 
into,  and  their  almost  immediate  exit  out  of,  the  then  just 
opened  territory  of  Oklahoma.  The  facility  with  which 
lottery  tickets  are  sold  even  yet  in  many  countries  proves 
the  prevalence  of  this  over-confidence.  It  is  demonstrable 
beforehand  on  the  doctrine  of  Chances,  that  no  person  can 
rationally  buy  any  lottery  ticket  at  its  advertised  price, 
because  if  that  person  should  buy  all  the  tickets  adver- 
tised he  would  certainly  lose  money,  since  the  sum  of  the 
prizes  is  always  less  than  the  sum  of  the  prices.  Other- 
wise the  projectors  of  the  lottery  would  always  lose 
money. 

(e)  The  mobility  or  immobility  of  laborers  as  a  class 
acts  powerfully  upon  the  Supply  of  them  at  any  one  time 
and  place,  and  consequently  upon  the  rates  of  wages  then 
and  there.  In  some  countries,  notably  in  the  United 
States,  laborers  as  a  class  move  from  place  to  place  with 
considerable  facility  under  the  action  of  Demand  for  per- 
sonal services.  According  to  the  Census  of  1870,  7,500,000 
of  the  native  population  dwelt  in  other  States  than  those 
in  which  they  were  born.  Many  of  these,  doubtless,  had 


222  PRINCIPLES    OF   POLITICAL   ECONOMY. 

left  their  native  region  to  obtain  more  fertile  land,  and 
many  also  to  obtain  more  remunerative  employment  as 
laborers.  The  native  American,  more  than  most  other 
persons,  is  not  only  willing  to  move  from  place  to  place  in 
the  hope  of  bettering  his  condition,  but  is  also  willing  to 
change  his  occupation  from  time  to  time  in  the  same  hope. 
There  is  more  freedom  of  movement  locally,  and  less  fixed- 
ness of  occupation  on  the  part  of  laborers  and  others,  in 
this  country  than  in  any  other  industrial  country.  Even 
foreign  immigrants  here,  —  factory  operatives,  miners,  and 
other  laborers,  —  seem  to  catch  after  a  while  the  spirit  of 
the  country  in  both  these  respects.  There  is  one  consid- 
erable advantage  in  all  this,  namely,  competition  becomes 
more  uniform  in  all  places,  an  unusual  demand  for  laborers 
at  any  one  point  is  easily  met,  and  wages  neither  rise  so 
high  nor  fall  so  low  at  special  points  as  they  otherwise 
would.  But  there  are  considerable  disadvantages  in  all 
this  too,  chiefly  these,  the  services  of  laborers  floating 
locally  or  changing  the  kind  of  their  labor  can  never 
become  so  excellent  as  service  more  steady  in  place  and 
time ;  and,  especially,  thorough  apprenticeships,  or  what- 
ever may  be  equivalent  to  these,  are  held  in  too  little 
esteem  by  public  opinion,  and  are  too  little  requisite  in 
order  to  obtain  transient  employment.  To  meet  the  obvi- 
ous pressure  of  these  disadvantages,  an  admirable  device 
is  now  being  hit  on,  namely,  to  introduce  into  our  public 
schools  something  in  the  way  of  "  manual  training "  for 
the  various  trades.  Public  institutions  also,  some  of  them 
on  a  great  scale,  as  the  Cooper  Union  in  New  York  and  a 
more  recent  munificent  foundation  in  Philadelphia,  have 
been  established  on  purpose  to  train  boys  and  girls  both  in 
eye  and  hand  to  render  skilfully  those  artisan  services  of 
the  various  kinds  which  will  always  be  in  demand  among 
men,  and  which  have  certainly  deteriorated  among  us 


PERSONAL   SERVICES.  223 

owing  in  part  to  the  disuse  of   the   old   apprenticeship- 
system. 

In  Europe,  on  the  other  hand,  the  laborers  as  a  class  are 
far  less  mobile  than  here  ;  and  in  Asia  still  less  so.  There 
is  said  to  be  no  country  in  Europe  in  which  the  proportion 
of  foreigners  to  the  native  population  exceeds  three  per 
centum.  In  England,  which  is  a  small  country,  the 
difference  in  Wages  between  the  northern  and  southern 
counties  is  very  remarkable.  Professor  Fawcett  is  authority 
for  the  statement,  that  an  ordinary  agricultural  laborer  in 
Yorkshire  during  the  winter  months  earns  13  shillings  a 
week,  while  a  Wiltshire  or  Dorsetshire  laborer  doing 
similar  work  during  the  same  number  of  hours  earns  but 
9  shillings.  The  contrast  in  general  between  the  Wages 
of  English  agricultural  laborers  and  those  paid  in  mills 
and  mines  and  furnaces  is  still  more  striking.  And  so 
more  or  less,  in  respect  to  the  Value  of  Commodities : 
competition  is  yet  by  no  means  perfect  in  distributing 
these  so  as  to  make  their  price  uniform  in  the  same 
country  or  even  in  the  same  county ;  but  the  immobility  of 
laborers  for  an  obvious  reason  is  much  greater  than  the 
immobility  of  goods.  While  laborers  should  certainly  be 
free  to  go  wherever  their  services  may  be  in  greater 
Demand,  the  natural  reluctance  of  most  men  to  leave  their 
native  haunts,  enables  each  of  the  nations  to  work  out  its 
freely  chosen  ends  without  wholesale  interference  from 
abroad.  If  China  should  precipitate  itself  upon  the  United 
States,  or  India  upon  England,  as  the  mere  economical 
impulse  might  indicate,  it  would  be  disastrous  to  the 
western  nations;  but  men  are  everywhere  under  other 
influences  besides  the  economical  one,  although  this  is 
strong  and  distinct  and  pervasive ;  Political  Economy  deals 
with  men  as  they  are  all  things  considered,  and  with 
Buying  and  Selling  as  this  actually  takes  place  over  the 


224  PRINCIPLES   OF   POLITICAL   ECONOMY. 

world,  or  rather  as  it  would  take  place  if  factitious 
economical  restraints  were  removed;  and  Providence  has 
other  great  ends  in  view  besides  commercial  prosperity, 
vital  as  that  is  to  all  other  progress,  and  often  holds  one 
impulse  in  check  by  a  stronger  one. 

( f )  Custom,  with  its  cognates  Prejudice  and  Fashion, 
has  still  a  good  deal  to  do  with  the  Supply  of  laborers  in 
certain  departments  of  effort,  and  of  course  with  the  rates 
of  wages  in  them.  In  former  times  in  this  country  and 
in  the  older  countries  particularly,  Custom  and  decree 
were  dominant  in  determining,  for  example,  the  current 
fees  of  lawyers  and  doctors,  competition  coming  in  to 
decide  how  many  such  fees  a  professional  laborer  should 
get,  rather  than  the  amount  of  each  particular  fee.  The 
shares  of  the  produce  going  respectively  to  the  agricultural 
tenant  and  to  the  landowner,  were  specially  under  the 
dominion  of  Custom ;  as  the  mode  (now  decadent)  of  taking 
farms  "  at  the  halves"  once  universally  prevalent  in  New 
England,  sufficiently  shows.  In  certain  other  matters  relat- 
ing to  land  and  trade,  Custom  has  long  been  gradually  hard- 
ening into  express  law,  as,  for  instance,  the  famous  "  Ulster 
Right  "  in  Ireland.  Prejudice,  which  is  only  another  name 
for  Custom,  has  some  voice  still  in  adjusting  rates  of  wages, 
as  may  be  seen  in  women's  wages  crowded  down  apparently 
to  a  point  unreasonaby  low  as  compared  with  the  wages  of 
men;  and  also  in  the  rate  of  John  Chinaman's  wages  in 
those  parts  of  the  United  States  where  he  ventures  to  offer 
his  services  in  the  teeth  of  public  opinion  and  hostile 
legislation.  It  may  be  spoken  with  general  truth  and 
satisfaction,  that  competition  seems  now  to  be  breaking 
down  mere  custom  and  prejudice  in  all  directions,  and  may 
perhaps  in  the  good  time  coming  reign  supreme  over 
the  economic  field;  while  Fashion,  which  bears  indeed  on 
one  side  of  its  shield  the  motto  "  custom,"  carries  too  on 


PERSONAL   SERVICES.  225 

the  other  the  bold  word  "competition,"  and  this  second 
side  is  likely  to  be  presented  to  the  public  mostly  in  the 
future,  because,  they  who  lead  the  styles  in  any  department 
whatsoever  will  always  offer  their  services  to  Society  at  an 
advantage  to  themselves,  that  being  one  form  of  compe- 
tition, and  their  rate  of  compensation  will  be  legitimately 
higher  than  the  average  rate  of  their  fellows,  of  which  a 
good  instance  was  the  marked  worldly  prosperity  during 
the  decade  of  the  Eighties  of  Worth,  the  man-dressmaker 
of  Paris. 

(g)  Legal  Restrictions  are  another  cause  acting  on  wages, 
by  acting  directly  on  the  Supply  of  laborers.  Laws  inhib- 
iting or  promoting  immigration ;  laws  appointing  the  fees 
and  salaries  of  officials;  tariff-taxes,  whether  prohibitory 
or  only  restrictive ;  laws  creating  privileged  classes  of  any 
kind,  which  is  only  another  designation  for  laws  restricting 
the  rights  of  the  masses ;  unequal  modes  of  taxation, 
whether  adopted  in  ignorance  or  by  design;  all  have  a 
direct  and  powerful  agency  upon  the  distribution  of 
laborers,  upon  the  supply  of  them  at  given  points,  and 
upon  the  rates  of  their  wages.  Governments  are  coming, 
however,  much  more  freely  than  formerly,  but  never 
through  their  natural  choice  and  drift  as  governments, 
only  by  the  gradual  and  oft-disappointed  compulsion  of 
their  citizens,  to  leave  all  these  matters  Economical  except 
the  wages  of  their  own  servants  and  those  commodities 
which  they  choose  to  tax,  to  the  simple  and  safe  action  of 
Supply  and  Demand. 

(h)  Voluntary  Associations  for  that  avowed  purpose 
were  a  mediaeval,  and  have  come  to  be  again  a  modern, 
agency  in  adjusting  the  Supply  of  laborers  to  their  respect- 
ive markets,  and  in  regulating  the  wages  of  various  classes 
of  them.  The  Guilds  of  the  Middle  Ages,  and  particularly 
the  old  guilds  of  London,  had  a  remarkable  history,  upon 


226  PRINCIPLES   OF  POLITICAL   ECONOMY. 

which  we  can  not  here  even  touch.  Their  local  importance 
is  sufficiently  attested  by  the  fact,  that  the  City  Hall  of 
London  is  to  this  day  the  "  Guildhall."  King  Edward  III. 
humored  the  civic  feeling  of  his  time  by  becoming  himself 
a  member  of  the  Guild  of  Armorers.  "A  seven  years' 
apprenticeship  formed  the  necessary  prelude  to  full  mem- 
bership of  any  trade-guild.  Their  regulations  were  of 
the  minutest  character ;  the  quality  and  value  of  work 
was  rigidly  prescribed,  the  hours  of  toil  fixed  from  day- 
break to  curfew,  and  strict  provision  made  against  com- 
petition in  labor.  At  each  meeting  of  these  guilds  their 
members  gathered  round  the  Craft-box,  which  contained 
the  rules  of  their  Society,  and  stood  with  bared  heads  as  it 
was  opened.  The  warden  and  a  quorum  of  guild-brothers 
formed  a  court  which  enforced  the  ordinances  of  the  guild, 
inspected  all  work  done  by  its  members,  confiscated  unlaw- 
ful tools  or  unworthy  goods;  and  disobedience  to  their 
orders  was  punished  by  fines,  or  in  the  last  resort  by 
expulsion,  which  involved  the  loss  of  right  to  trade.  A 
common  fund  was  raised  by  contributions  among  the 
members,  which  not  only  provided  for  the  trade  objects  of 
the  guild,  but  sufficed  to  found  chantries  and  masses,  and 
set  up  painted  windows  in  the  church  of  their  patron  saint. 
Even  at  the  present  day  the  arms  of  the  craft-guild  may 
often  be  seen  blazoned  in  cathedrals,  side  by  side  with 
those  of  prelates  and  kings."1 

The  Trades-Unions  and  Brotherhoods  of  the  present 
day  cannot  plead  the  provocations  and  justifications  of 
their  mediaeval  predecessors.  It  cannot  be  denied,  how- 
ever, that  they  have  some  provocations  and  justifications 
in  the  bad  example  set  before  them  by  the  various  combi- 
nations (implied  or  explicit)  of  the  Wages-payers  as  a 
class.  If  the  Wages-payers  combine,  then  the  Wages- 

1  Green's  Short  History  of  the  English  People,  p.  144. 


PERSONAL   SERVICES.  227 

takers  would  seem  to  have  no  resource  but  in  combination. 
Both  alike  are  wrong  in  this.  Both  alike  oppose  in  this 
the  spirit  of  Political  Economy,  which  is  ever  the  spirit  of 
Freedom,  and  is  ever  against  such  factitious  associations 
for  such  purposes,  because  they  tend  to  destroy  the  inde- 
pendence of  personal  action  on  the  part  of  both  payers  and 
takers  of  wages,  and  tend  also  to  bring  all  the  workmen 
of  any  one  general  grade  down  to  one  level  of  effort  and 
reward. 

(i)  Lastly,  we  must  note  the  influence  of  Casual  Events 
upon  wages,  as  these  events  affect  the  Supply  of  laborers. 
For  example,  in  1348,  a  terrible  plague,  called  the  Black 
Death,  invaded  England  and  swept  away  more  than  one- 
half  of  its  population.  "  Even  when  the  first  burst  of  panic 
was  over,  the  sudden  rise  of  wages  consequent  on  the 
enormous  diminution  in  the  supply  of  free  labor,  though 
accompanied  by  a  corresponding  rise  in  the  price  of  food, 
rudely  disturbed  the  course  of  industrial  employments; 
harvests  rotted  on  the  ground,  and  fields  were  left  untilled, 
not  merely  from  scarcity  of  hands,  but  from  the  strife 
which  now  for  the  first  time  revealed  itself  between  Cap- 
ital and  Labor  "  (Green).  The  landowners  of  the  country 
districts,  and  the  craftsmen  of  the  towns,  not  understand- 
ing the  law  of  Wages  as  an  invariable  resultant  of  the 
Demand  and  Supply  of  laborers,  were  scandalized  by  what 
seemed  to  them  the  extravagant  demands  of  the  new 
labor-class.  Parliament  equally  ignorant  with  the  People 
of  the  natural  economic  law,  enacted  as  follows :  "  Every 
man  or  woman  of  whatsoever  condition,  free  or  bond,  able 
in  body,  and  within  the  age  of  threescore  years,  and  not  hav- 
ing of  his  own  whereof  he  may  live,  nor  land  of  his  oivn 
abovt  the  tillage  of  which  he  may  occupy  himself,  and  not 
serv:a  i  any  other,  shall  be  bound  to  serve  the  employer  who 
shall  require  him  to  do  so,  and  shall  take  only  the  wages 


228  PRINCIPLES   OF   POLITICAL  ECONOMY. 

which  were  accustomed  to  be  taken  in  the  neighborhood  where 
he  is  bound  to  serve  two  years  before  the  plague  began" 
Afterwards,  the  runaway  laborer  was  ordered  by  Parlia- 
mentary enactment  to  be  branded  in  the  forehead  by  a 
hot  iron,  and  the  harboring  of  the  country  serfs  in  the 
towns,  in  which  under  their  civic  rules  a  serf  keeping  him- 
self a  year  and  a  day  was  thereafter  free,  was  rigorously 
forbidden.  These  acts  of  Parliament,  and  many  more  of 
the  same  kind,  were  powerless  to  keep  down  wages  to  the 
old  standard,  but  were  powerful  to  keep  up  ill-blood  and 
social  discontent.  They  prepared  the  way  for  agitators 
like  John  Ball,  for  the  poet-agitator  Piers  Ploughman,  and 
for  the  great  Peasant  Revolt  of  1381.  John  Ball's  famous 
rhyme  condensed  the  scorn  for  the  nobles,  the  longing  for 
just  rule,  and  the  resentment  at  oppression,  of  the  peasants 
of  that  time  and  of  all  times :  — 

"When  Adam  delved  and  Eve  span, 
Who  was  then  the  gentleman  ?  " 

A  hundred  years  after  the  Black  Death  the  wages  of  a 
common  English  laborer  —  we  have  the  highest  authority 
for  the  statement  —  commanded  twice  the  amount  of  the 
necessaries  of  life  which  could  have  been  obtained  for  the 
wages  paid  under  Edward  III. 

3.  Having  now  seen  fully  the  varied  action  of  Supply 
and  Demand  upon  the  Value  of  personal  services  in  their 
three  kinds,  we  come  at  length  to  the  most  important 
general  point  in  this  chapter,  namely,  that  in  the  second 
class  of  Services,  those  purchased  in  connection  with  the 
use  of  Capital,  WAGES  ARE  ALL  THE  TIME  ENLARGING 
RELATIVELY  TO  PROFITS.  We  have  seen  clearly  already, 
that  Cost  of  Labor  and  Cost  of  Capital  are  the  only  oner- 
ous elements  in  the  cost  of  Commodities ;  because,  while 
Katural  Agents  are  all  the  time  assisting  and  assisting  more 


PERSONAL    SERVICES.  229 

and  more  effectively  in  such  production,  they  work  with- 
out weariness  or  decay  and  without  fee  or  reward.  The 
reward  of  laborers  is  Wages,  and  the  reward  of  capitalists 
is  Profits ;  and  we  are  now  to  demonstrate,  that  'the  part  of 
their  joint  products  falling  to  laborers  as  wages  is  all  the 
while  increasing  as  compared  with  the  remaining  part  fall- 
ing to  capitalists  as  profits.  This  truth  is  of  the  deepest 
significance,  and  of  the  most  cheering  character ;  because 
men  are  more  important  in  the  universe  than  things ;  and 
because  the  number  of  men  who  sell  their  services  as  labor- 
ers is  vastly  greater  than  the  number  of  men  who  sell  their 
services  as  capitalists. 

It  is  another  indisputable  and  exhilarating  truth  for  the 
masses  of  mankind,  that  the  Value  of  each  item  or  article 
of  those  products  created  by  the  joint  action  of  laborers 
and  capitalists  is  ever  becoming  less  and  less  as  measured 
by  any  relatively  fixed  standard  as  Money  ;  so  that,  while 
wages  as  thus  measured  becomes  a  larger  and  larger  aggre- 
gate as  compared  with  the  aggregate  of  profits,  and  is 
shared  of  course  by  a  much  larger  number  of  people, 
those  commodities  looked  at  as  a  collection  of  items  for 
which  the  wages  of  these  many  is  usually  expended  for 
their  own  comforts,  are  becoming  all  the  time  cheaper 
and  cheaper  to  everybody,  owing  to  the  ever-enlarging 
and  wholly  gratuitous  action  of  natural  forces. 

For  the  sake  of  simplicity  in  the  argument  on  this  great 
point,  we  will  first  look  at  what  the  facts  are  through 
recent  illustrations  gathered  by  other  parties  for  a  wholly 
different  purpose,  and  then  give  in  detail  the  economical 
grounds  for  these  patent  and  universal  facts.  Take  for 
example,  from  Poor's  Railroad  Manual  for  1889  a  table 
showing  in  a  graphic  way  the  steady  reduction  in  freight 
charges  per  ton  per  mile  from  1865  to  1888  of  seven  repre- 
sentative Eastern  trunk  railroad  lines,  namely,  the  Penn- 


230 


PRINCIPLES   OF   POLITICAL  ECONOMY. 


sylvania,  Fort  Wayne  and  Chicago,  New  York  Central, 
Michigan  Central,  Lake  Shore,  Boston  and  Albany,  and 
Lake  Erie  and  Western ;  and  of  six  leading  Western  roads, 
namely,  the  Illinois  Central,  St.  Paul,  Burlington  and 
Quincy,  Chicago  and  Northwestern,  Rock  Island,  and 
Chicago  and  Alton.  The  following  are  the  figures :  — 

RATE  CHARGES  PER  TON  PER  MILE  (IN  CENTS). 


Year. 

Eastern. 

Western. 

Year. 

Eastern. 

Western. 

1865 

2.900 

3.642 

1877 

.971 

1.664 

1866 

2.503 

3.459 

1878 

.898 

1.476 

1867 

2.305 

3.175 

1879 

.764 

1.279 

1868 

2.132 

3.151 

1880 

.869 

1.389 

1869 

1.860 

3.026 

1881 

.763 

1.405 

1870 

1.593 

2.423 

1882 

.756 

1.364 

1871 

1.478 

2.509 

1883 

.829 

1.310 

1872 

1.504 

2.324 

1884 

.740 

1.220 

1873 

1.476 

2.188 

1885 

.636 

1.158 

1874 

1.332 

2.160 

1886 

.711 

1.111 

1875 

1.161 

1.979 

1887 

.718 

1.014 

1876 

.985 

1.877 

1888 

.609 

.934 

This  reduction  of  rates  in  the  case  of  the  group  of 
Eastern  roads  has  amounted  to  79  per  centum,  and  in  the 
Western  group  to  73  per  centum,  in  the  twenty-four  years. 
Not  less  remarkable  than  the  extent  of  this  decline  in 
freight  charges  per  mile  is  its  uniformity.  Both  groups 
show  a  wonderful  steadiness  in  the  progress  of  rate  reduc- 
tions. Starting  at  quite  different  points  as  to  territorial 
development,  they  have  yet  travelled  at  a  nearly  equal  pace 
in  the  same  direction.  This  shows  the  operation  of  causes 
at  once  steady  and  universal.  Statistics  can  never  of  them- 
selves yield  us  causes  ;  but  they  guide  the  way  to  them ; 
at  any  rate,  they  prevent  any  radical  misinterpretation  of 
them.  The  great  and  overshadowing  cause  here  of  the 
cheaper  freights  per  ton,  as  everywhere  else  of  cheaper 


PERSONAL   SERVICES.  231 

rates  at  the  junction  of  efforts  by  capitalists  and  laborers, 
is  of  course  the  perpetual  and  augmenting  and  ever-gratu- 
itous assistance  of  natural  forces  at  every  point. 

While  the  rates  of  freight  per  ton  have  decreased  more 
than  three-quarters  in  less  than  one-quarter  of  a  century 
in  the  case  of  these  13  railroads  on  the  whole  average,  the 
entire  cost  of  the  operation  of  these  roads  in  this  interval 
of  time  has  not  been  diminished  to  any  appreciable  extent, 
as  also  stated  by  the  same  Manual.  The  main  item  in  all 
the  operation-expenses  of  railroads  is  the  wages  paid  to 
the  laborers  of  all  grades;  and  the  laborers  are  quite  as 
well  paid  now  on  these  13  roads  as  they  were  in  1865, 
proper  allowances  being  made  for  the  changed  and  chang- 
ing standards  in  the  national  Money.  If,  on  a  broad  view, 
railroad  employees  of  all  grades  have  lost  nothing  as  such 
in  their  wages  in  this  interval;  and  the  general  public, 
including  these  laborers  and  also  the  capitalists  concerned, 
have  greatly  gained,  how  can  we  account  for  the  immensely 
lessened  freight-charges  while  the  whole  operation-expenses 
continue  substantially  as  before  ? 

There  is  only  one  rational  account  to  be  given  of  this. 
And  it  is  trustworthy.  All  known  facts  jump  with  it,  and 
nothing  substantial  can  be  urged  against  it.  The  gains  to 
the  masses  including  the  capitalists  and  the  laborers  have 
come  out  of  the  capitalists  as  such.  This  is  apparent  as  well 
as  real.  Cost  of  Labor  and  Cost  of  Capital  is  the  whole 
cost.  If  the  whole  cost  of  moving  one  ton  of  freight  from 
Boston  to  Chicago  is  f  less  than  it  was  i  of  a  century  ago, 
the  cost  of  the  labor  being  the  same  at  the  two  points  of 
time,  then  the  conclusion  is  inevitable,  that  the  cost  of  the 
capital  at  the  second  point  is  less  than  it  was  at  the  first 
point.  With  this  conclusion  all  facts  agree.  All  the 
laborers  connected  with  a  railroad  from  highest  to  lowest 
must  be  paid  at  any  rate,  or  else  the  trains  will  certainly 


PRINCIPLES   OF   POLITICAL   ECONOMY. 

cease  to  move,  whether  the  stockholders  receive  any 
dividend  or  not  on  their  capital  invested.  The  original 
stock — the  capital  that  built  the  roads  —  of  many  if  not  of 
most  the  railroads  in  the  country,  has  been  annihilated,  a 
new  indebtedness  in  another  form  called  bonds  having 
taken  the  place  of  it.  Even  the  nominal  dividends  of 
dividend-paying  roads  have  declined  in  the  interval  from 
10  or  8  to  5  or  4  per  centum  in  the  general,  that  is,  50  per 
centum.  It  is  perfectly  evident  on  every  hand,  that  there 
is  something  in  the  nature  and  progress  of  things,  that 
makes  for  wages  as  contrasted  with  profits :  wages  hold  on 
and  relatively  enlarge,  profits  decline  or  go  out  altogether. 
Fortunately  we  are  not  left  to  generalities  here,  however 
plain  and  certain  these  may  be.  One  of  the  13  railroads 
specified  above,  the  Illinois  Central,  made  a  remarkable 
exhibit  in  its  own  annual  Report  of  1887,  showing  the  cost 
of  its  locomotive  service  for  each  year  of  the  thirty  years 
preceding.  This  cost  per  mile  run  had  fallen  from  26.52 
cents  in  1857  to  13.93  cents  in  1886.  This  reduction  had 
been  effected  wholly  on  the  Capital  side  of  the  account,  by 
inventions  and  improvements  of  all  sorts  in  the  machinery 
of  locomotion;  while  the  wages  of  the  engineers  and 
firemen  had  risen  in  the  period  from  4.51  cents  to  5.52  cents 
per  mile  run.  The  cost  of  the  labor  had  risen  both 
relatively  and  absolutely  while  the  cost  of  the  capital  had 
declined  both  absolutely  and  relatively.  In  1857  the 
engineers  and  firemen  had  received  as  wages  17%  of  the 
entire  cost  of  the  locomotive  service,  but  in  1886  they  had 
received  39  %  of  that  total  cost.  The  table  is  as  follows  :  — 


PERSONAL   SERVICES. 


233 


I.  C.  R.  R.  CO. 

PERFORMANCE  OF  LOCOMOTIVES.      RELATION  OF  WAGES  TO  TOTAL 
COST  PER  MILE  RUN. 


Years. 

Cost  of  wages 
of  engineers 
and  firemen  per 
mile  run. 

Total  cost 
mile  run. 

Years. 

Cost  of  wages 
of  engineers 
and  firemen  per 
mile  run. 

Total  cost 
per 
mile  run. 

Cents. 

Cents. 

Cents. 

Cents. 

1857 

f4.51 

26.22 

1872 

f5.77 

21.76 

1858 

.  |  3.97 

19.81 

1873 

5.84 

21.10 

1859 

2 

"o  * 

3.81 

20.78 

1874 

£ 

6.02 

19.57 

1860 

P 

3.96 

20.17 

1875 

s  . 

6.03 

19.57 

1861 

3.84 

18.92 

1876 

% 

5.79 

18.81 

1862 

^3.85 

17.42 

1877 

o 

5.54 

17.21 

1863 

3.93 

22.28 

1878 

5.46 

15.29 

1864 

5.56 

33.52 

1879 

:5.41 

14.15 

1865 

t* 

5.65 

37.44 

1880 

5.41 

14.95 

1866 

o 

o 

5.78 

32.67 

1881 

5.54 

16.58 

1867 

£  ' 

6.18 

29.62 

1882 

a 

5.09 

15.82 

1868 

3 

Q 

6.11 

27.57 

1883 

§  1  5.35 

15.57 

1869 

5.88 

25.49 

1884 

5.28 

14.45 

1870 

5.95 

25.15 

1885 

5.49 

15.02 

1871 

5.72 

21.50 

1886 

[5.52 

13.93 

In  1857  the  engineers  and  firemen  received  17^°^  per  cent,  of  total  cost. 
In  1865  the  engineers  and  firemen  received  15rf  ^  per  cent,  of  total  cost. 
In  1867  the  engineers  and  firemen  received  20^$^  per  cent,  of  total  cost. 
In  1886  the  engineers  and  firemen  received  39T67yff  per  cent,  of  total  cost. 

These  illustrations  from  the  railroads  are  plainly  indic- 
ative of  a  general  truth  of  the  utmost  importance  in 
Political  Economy,  namely,  that  all  increase  of  Capital  and 
all  inventions  and  improvements  in  its  practical  application, 
while  it  redounds  to  the  benefit  of  capitalists  as  a  class, 
redounds  in  a  still  higher  degree  to  the  benefit  of  laborers  as 
a  class.  Let  us  now  attend  for  a  moment  to  the  convincing 
Proof  of  this  truth  in  two  phases  of  such  proof,  and  also 
to  a  cheering  conclusion  that  follows  it. 

(a)  As  any  country  grows  older  in  time  and  richer 
through  abstinence,  and  as  the  whole  world  thus  grows 


234  PRINCIPLES   OF   POLITICAL  ECONOMY. 

older  and  richer,  the  tendency  there  and  everywhere 
towards  a  general  decline  in  the  rate  per  centum  for  the 
use  of  capital  becomes  patent  and  universal.  The  rate  of 
interest  on  money  loaned,  and  the  rate  of  profits  on  capital 
used,  tend  all  the  while  to  go  down  as  and  because  capital 
accumulates.  No  one  will  dispute  this  as  a  simple  fact  of 
history.  And  no  economist  will  dispute,  that  this  is  just 
what  we  might  expect  beforehand  as  a  corollary  from  the 
admitted  proposition,  that,  other  things  being  equal,  an 
increased  Supply  of  anything  means  a  lessened  Value  for 
any  specific  part  of  it.  Three  centuries  ago  in  England 
the  legal  rate  of  interest  was  10%,  while  now  the  current 
rate  is  about  4%  in  that  country,  and  has  been  consider- 
ably lower  than  that  in  Holland,  although  in  both  countries 
and  everywhere  else  there  are  temporary  interruptions  and 
reactions  in  the  constant  tendency  now  being  considered. 
During  the  first  years  of  mining  operations  in  California, 
from  8%  to  15%  per  month  with  security  of  real  estate 
was  paid  for  the  use  of  money,  which  enormous  rates  long 
ago  declined  to  rates  not  much  higher  than  those  paid  in 
the  States  along  the  Mississippi  River,  and  in  these  also 
the  rates  are  all  the  while  approximating  those  current  in 
the  older  Eastern  States,  whose  own  rates  too  are  slowly 
declining.  But,  while  there  is  a  less  rate  of  profit  or 
interest  on  each  100  invested,  there  are  many  more  hun- 
dreds capitalized ;  consequently,  there  is  an  absolute  gain 
to  capitalists  as  a  class,  at  once  in  the  aggregate  amount 
of  the  capital  and  in  the  aggregate  sum  of  the  profits  from 
it,  since  no  capitalist  would  have  a  motive  to  capitalize 
further  under  the  smaller  rates  of  profit,  unless  the  aggre- 
gate of  profits  under  the  new  conditions  were  greater  than 
under  tlie  old  condition  of  higher  rates ;  and,  as  much  of 
this  accumulating  capital  in  order  to  become  productive 
must  now  be  offered  to  laborers  in  the  form  of  wages,  we 


PERSONAL   SERVICES.  235 

might  almost  pronounce  beforehand,  that  it  would  prove 
both  an  absolute  and  also  a  relative  gain  to  laborers  as  a 
class.  And  so  it  is. 

(b)  Let  us  take  to  figures.  An  hypothesis  or  supposed 
case,  whenever  it  may  easily  become  an  overt  fact,  may  be 
reasoned  from  just  as  logically  and  securely  as  the  overt 
fact  itself.  Let  1100,000,000,  while  the  rate  of  profit  is 
6%,  and  $500,000,000,  when  the  rate  has  fallen  to  4%,  be 
expended  in  payment  of  simple  wages.  So  far  forth  as 
that  one  element  of  cost  goes,  the  value  of  the  products 
to  be  divided  yearly  between  capitalists  and  laborers  will 
become  respectively  1106,000,000  and  1520,000,000.  In  the 
first  case,  16,000,000  is  profits  and  1100,000,000  is  wages ; 
in  the  second  case,  $20,000,000  is  profits  and  $500,000,000 
is  wages.  Here  is  an  absolute  gain  to  the  capitalists,  since 
profits  have  gone  up  from  $6,000,000  to  $20,000,000,  and 
so  are  more  than  three  times  as  great  as  before.  But 
wages  have  gone  up  both  absolutely  and  relatively  to  the 
rise  of  profits.  They  have  risen  from  $100,000,000  to 
$500,000,000,  and  are  jive  times  as  great  as  before.  Profits 
have  risen  as  in  the  ratio  1:3  +  ,  but  wages  in  the  ratio  of 
1:5.  This  arithmetical  example  is  put  for  the  sake  of 
illustration  merely,  but  the  principle  of  it  holds  good  in 
every  case,  in  which  the  rate  per  centum  goes  down  in 
consequence  of  the  increase  of  capital  in  business  ;  and, 
therefore,  the  advantages  of  ever-enlarging  Capital  are 
even  greater  to  laborers  as  a  class  than  to  the  capitalists 
themselves.  Most  assuredly,  if  the  capitalists  take  less  out 
of  each  hundred  of  the  swelling  hundreds  now  than  before, 
the  laborers  must  take  more  out  of  each  hundred  than 
before.  Profits  and  Wages  are  reciprocally  the  leavings 
of  each  other,  because  the  aggregate  products  created  by 
the  joint  agency  of  Capitalist  and  Laborer  are  wholly  to 
be  divided  between  the  two.  There  can  be  no  other 
claimant  even. 


236  PRINCIPLES   OF   POLITICAL   ECONOMY. 

(c)  This  demonstration  is  extremely  important  in  Polit- 
ical Economy,  and  consequently  in  Social  Life  ;  for  it 
proves  beyond  the  possibility  of  a  cavil,  the  Value  of  per- 
sonal services  tends  constantly  to  rise,  not  only  as  com- 
pared with  the  Value  of  the  material  commodities  which 
by  the  aid  of  capital  they  help  to  create  (a  truth  we  have 
seen  before),  but  also  as  compared  with  the  Value  of  the 
use  of  its  co-partner  capital  itself;  and  therefore,  that 
there  is  inwrought  into  the  very  substance  of  things  in 
this  world  a  tendency  towards  an  equality  of  economical 
condition  among  men.  God  has  ordered  it,  and  men  can- 
not radically  alter  it.  Self-interest  is  indeed  the  main- 
spring of  movement  in  the  economic  world ;  but  the 
beauty  of  it  and  the  wonder  of  it  is,  that  no  man  can  labor 
intelligently  and  productively  under  the  influence  of  self- 
interest  without  at  the  same  time  benefiting  the  masses  of 
men.  His  fair  exchanges  benefit  the  parties  of  the  other 
part  as  much  as  they  benefit  himself.  His  very  savings 
productively  employed  are  poor  men's  livings.  Only  under 
the  blessed  freedom  of  universal  Buying  and  Selling, 
subject  only  to  the  taxation  of  a  good  Government  for 
public  purposes  purely,  can  these  broad  benefits  designed 
by  a  wise  Providence  be  fully  realized  in  action ;  and  the 
power  of  individual  greed  and  corporate  privilege  and 
governmental  perversion  to  thwart  the  beneficent  though 
complicated  workings  of  these  laws  of  Capital  and  Labor 
towards  the  common  weal  and  universal  progress  of  man- 
kind is  shortlived  and  soon  punished. 

4.  How  comes  it  about,  then,  if  these  laws  of  mutual 
inter-dependence  between  capitalists  and  laborers  are  so 
well-placed  and  Providentially  balanced,  that  there  always 
have  been  and  are  still  so  many  misunderstandings  and  ill- 
feelings  and  actual  collisions  between  employers  and  skilled 
laborers,  whose  interests  are  at  bottom  one  and  whose 


PERSONAL   SERVICES.  237 

relations  ought  to  be  so  cordial?  This  is  the  last  topic 
in  our  Chapter  on  Personal  Services.  Here  we  must  look 
around  narrowly  and  tread  carefully.  But  there  is  a 
path.  We  can  find  it  if  we  will.  It  leads  through  many 
short-comings  in  men's  characters  and  through  much  igno- 
rance of  plain  economical  truths  and  past  unreasoning  jeal- 
ousies and  aggregated  action  on  the  part  of  both  classes,  and 
over  the  needful  distinctions  between  impulsive  selfishness 
and  a  true  self-interest  back  to  the  same  old  laws  of  God 
laid  down  at  once  in  the  constitution  of  things  and  in  the 
constitution  of  men. 

Labor-troubles  are  almost  as  old  as  Civilization.  The 
Greek  poet  Euripides  in  his  play  of  the  "  Supplicants  " 
both  indicates  facts  as  they  were  then,  and  points  out  a 
future  hope  in  which  we  may  share,  that  these  middle 
classes  by  a  better  harmony  preordained  and  mutually 
beneficial  may  yet  "  save  the  State  " :  — 

"In  each  State 

Are  marked  three  classes :  of  the  public  good 
The  rich  are  listless,  all  their  thoughts  to  more 
Aspiring ;  they  that  struggle  with  their  wants, 
Short  of  the  means  of  life,  are  clamorous,  rude, 
To  envy  much  addicted,  'gainst  the  rich 
Aiming  their  bitter  shafts,  and  led  away 
By  the  false  glosses  of  their  wily  leaders. 
'Twixt  these  extremes  there  are  who  save  the  State, 
Guardians  of  order,  and  their  country's  laws." 

At  Rome  and  in  the  Roman  Empire,  instead  of  the  usual 
voluntary  union  of  capitalists  and  laborers  for  the  mutual 
advantage  of  each  other,  the  laborer  was  owned  by  the 
capitalist,  and  the  true  relations  between  the  two  were 
thoroughly  disguised  and  wretchedly  distorted.  Business 
in  all  its  branches  came  to  be  carried  on  by  means  of  slaves ; 
the  lands  were  tilled  by  slaves ;  slaves  became  the  artisans 


238  PRINCIPLES   OF   POLITICAL   ECONOMY. 

of  the  country;  the  money-lenders  and  bankers  of  the 
centre  scattered  branch-banks  in  the  towns  under  the 
direction  of  their  slaves  and  freedmen ;  the  Company  that 
leased  on  speculation  the  Customs-Taxes  from  the  State 
had  their  slaves  and  freedmen  levy  these  taxes  at  each 
custom-house ;  the  contractor  for  buildings  bought  architect- 
slaves;  and  the  merchant  imported  his  goods  in  ships  of 
his  own  manned  by  his  slaves  or  freedmen,  and  then  sold 
the  same  at  wholesale  or  retail  by  the  same  means.  In  this 
way  a  gigantic  system  of  unnatural  traffic  was  built  up  and 
extended.  In  this  way  the  very  name  "  laborer  "  became 
tainted  by  the  vile  system  of  slavery  of  which  he  was 
a  part,  and  the  distinction  itself  between  capitalist  and 
laborer  was  obliterated.  "Roman  mercantile  transactions 
fully  kept  pace  with  the  contemporary  development  of  polit- 
ical power,  and  were  no  less  grand  of  their  kind."  "The 
Roman  denarius  followed  up  closely  the  Roman  legions." 
"It  is  very  possible  that,  compared  with  the  suffering 
of  the  Roman  slaves,  the  sum  of  all  negro  suffering  is 
but  a  drop"  (Mommsen). 

We  want  now  to  examine  critically  the  CAUSES  of  these 
constantly  recurring  labor-troubles,  the  true  economical 
REMEDIES  for  them,  and  in  connection  with  these  the 
futility  of  the  remedies  popularly  recommended  for  low 
Wages  and  the  disputes  between  employers  and  employed 
of  the  second  class. 

(1)  There  is  an  extremely  common  misapprehension  on 
the  part  of  both  labor-givers  and  labor-takers  as  to  the  real 
nature  of  the  transaction  between  them.  Both  parties 
forget,  or  rather  neither  party  is  ever  fully  instructed,  that 
it  is  a  case  of  pure  Buying  and  Selling.  There  is  never  any 
obligation  of  the  moral  sort  between  buyers  and  sellers. 
The  relation  itself  is  purely  economical.  Moral  consider- 
ations indeed  cover  this  relation  from  above,  just  as  they 


PERSONAL   SERVICES.  239 

cover  all  other  relations  between  man  and  man  in  human 
Society;  and  any  two  individuals  standing  over  against 
one  another  as  buyer  and  seller,  also  stand  over  against 
each  other  in  higher  and  broader  relations  as  man  and  man ; 
but  it  works  confusion  and  mischief  as  between  both, 
whenever  relations  differing  in  their  nature  and  operation 
and  reward  are  not  separated  from  each  other  in  the  mind 
of  each  relator,  and  whenever  each  does  not  act  in  the 
particular  relation  according  to  the  nature  and  rules  of 
that  relation  alone.  When  A  hires  B  to  work  in  his  factory, 
this  new  relation  is  economical  not  moral;  there  were 
moral  relations  between  the  two  before  this  relation  was 
knit,  arid  will  be  again  after  this  has  been  broken,  and 
indeed  are  while  this  continues ;  but  the  economical  relation 
is  one  thing,  and  the  others  a  very  different  thing ;  they 
are  so  different,  that  they  cannot  be  blended  in  mind  or 
motive  to  any  advantage  to  either  individual  or  to  either 
set  of  relations;  and  any  degree  of  confusion  as  between 
the  relations  has  always  wrought  mischief  as  between  the 
individuals,  because  instead  of  seeing  either  set  of  relations 
in  its  own  clear  light,  they  now  see  both  in  a  commingled 
twilight. 

What  is  the  economical  relation  ?  This.  A  desires  the 
personal  service  of  B  in  his  factory  purely  for  his  pecun- 
iary benefit,  and  assumes  his  own  ability  to  make  all  the 
calculations  requisite  for  determining  how  much  he  can 
(profitably  to  himself)  offer  B  for  his  service  ;  and  B,  who 
knows  all  about  his  own  skill,  how  it  was  acquired  and 
how  much  it  has  cost,  wants  to  sell  his  service  to  A  for 
the  sake  of  the  pecuniary  return  or  wages.  There  is  no 
obligation  resting  upon  either.  Man  to  man,  each  in  his 
own  right.  There  is  no  benevolence  in  the  heart  of  either, 
so  far  as  this  matter  goes.  Benevolence  is  now  an  imper- 
tinence. It  is  a  question  of  honest  gain  in  broad  daylight. 


240  PRINCIPLES    OF    POLITICAL   ECONOMY. 

Benevolence  is  blessed  in  its  own  sphere,  but  there  is  no 
call  for  it  here  and  now.  If  it  comes  in  an  unbidden  guest, 
it  comes  in  to  mar  and  to  distort.  It  is  an  incongruity.  "  / 
never  knew  a  Jew  converted  but  it  spoilt  him"  was  the  word 
of  one  deeply  versed  in  human  nature  and  in  Christian 
experience.  Conversion  is  good,  and  its  field  is  broad ; 
but  the  Jew  as  such  is  incongruous  with  it.  Good  is 
benevolence  and  Avide  its  field,  but  Buying  and  Selling 
does  not  need  it.  Its  own  motives  are  independent  of  it, 
and  sufficient  without  it. 

A  clouded  understanding  of  this  vital  distinction  has 
always  played  its  part  in  Labor-troubles.  Buyers  and 
Sellers  of  personal  services  are  always  on  a  plane  of  perfect 
equality  as  such  exchangers,  and  no  one  can  be  more  inde- 
pendent than  either  of  them  except  the  hermit  in  his  cell. 
Which  must  look  out  for  the  interest  of  the  other  beyond 
the  terms  implied  in  the  trade  itself?  Which  is  the  supe- 
rior party?  Which  should  take  off  his  hat,  the  other 
remaining  covered  ?  The  truth  is,  and  all  experience  and 
all  analysis  brings  us  up  abreast  of  it,  that  the  two  parties 
to  a  trade  of  any  kind  stand  on  a  footing  of  absolute 
equality  towards  each  other  then  and  there  in  the  econom- 
ical relation  about  to  be  knit,  and  any  conception  in  the 
mind  of  either  that  he  has  the  other  "  at  his  mercy  "  in 
either  the  good  or  bad  sense  of  that  phrase,  disturbs  and 
destroys  the  proper  conditions  and  balances  of  the  exchange 
in  hand ;  and,  what  is  more  to  the  point,  it  implies  that 
each  party  has  not  all  he  can  do  to  fulfil  in  the  letter  and 
in  the  spirit  what  is  always  implied  in  the  terms  of  a  trade 
deliberately  entered  upon  by  two  parties.  When  B  agrees 
to  work  for  A  at  skilled  labor  in  his  factory  for  a  year  at 
$15  per  week,  he  makes  a  good  deal  of  a  contract;  and 
virtually  pledges  to  A  not  only  the  motions  of  his  hands 
for  that  period  of  time,  but  also  the  vigorous  attention  of 


PERSONAL   SERVICES.  241 

his  mind  to  that  service  and  to  the  general  interests  of  his 
employer  so  far  as  these  come  under  his  own  eye  and 
supervision.  Nor  is  this  all :  he  virtually  pledges  himself 
to  B  to  cooperate  with  the  least  possible  friction  in  all 
plans  for  betterment  in  his  division  of  the  work,  and  to 
cordially  coalesce  with  all  other  employees  for  the  general 
ends  of  the  business  without  too  much  of  self-assertion  and 
without  too  little  of  courtesy  to  others.  To  fulfil  this  con- 
tract in  all  its  spirit  rounds  up  the  circle  of  B's  economical 
obligations  to  A.  He  will  practically  have  all  he  can  do,  so 
far  as  A  is  concerned,  and  in  consistency  with  all  his  various 
duties  to  others,  to  make  good  to  him  at  all  points  his 
simple  business  pledges.  Benevolence,  the  interests  of  a 
common  citizenship,  and  the  reciprocal  ties  of  religion,  lie 
wholly  outside. 

A  will  practically  have  all  he  can  do,  so  far  as  B  is 
concerned,  to  fulfil  in  the  letter  and  in  the  spirit  his 
economical  obligations  to  him,  without  troubling  himself 
to  see  whether  B  is  going  to  vote  the  same  party  ticket 
that  he  himself  votes,  and  without  confounding  either  B's 
poverty  or  prosperity  with  his  own  obligation  to  be  polite 
to  him  at  all  times  and  to  pay  him  promptly  his  weekly 
stipend.  So  long  as  B  renders  in  letter  and  in  spirit  what 
he  has  agreed  to  render,  and  A  returns  in  the  same  way 
what  he  has  promised  to  return,  the  less  either  thinks  and 
talks  and  acts  about  the  other  in  all  the  other  relations  of 
life,  the  better  hope  of  good  success  to  both  in  this  relation. 
Church  relations  and  social  relations  and  political  relations 
are  all  of  consequence  in  themselves ;  but  when  any  of 
these  begin  to  get  mixed  up  with  labor-relations,  there  is 
soon  a  muss  and  a  mess.  Incongruous  things,  things 
no  way  vitally  connected  with  that,  often  come  in  to  dis- 
turb and  destroy  a  simple  matter  of  mutual  renderings. 

(a)  The  first  practical  remedy  for  difficulties   arising 


242  PRINCIPLES   OF   POLITICAL   ECONOMY. 

under  this  first  head,  is  a  clearer  separation  in  the  mind 
of  both  parties  to  a  trade  of  what  really  belongs  to  Buying 
and  Selling  from  what  belongs  to  all  other  departments  of 
activity.  More  common  'sense  is  needed  at  this  point, 
more  simple  analysis,  more  daylight,  more  personal  inde- 
pendence, more  introspection  as  to  motives,  more  power  in 
making  distinctions,  and  a  more  practical  separation  of 
what  is  clear  and  fixed  from  what  is  complex  and  obscure 
in  human  relations.  Metaphysics  may  yet  lie  in  cloud- 
land,  Ethics  may  not  yet  have  drawn  its  outer  and  interior 
lines  so  strong  and  deep  as  it  will,  Sociology  also  is  a 
vast  field  of  complexities,  but  truth  to  tell  Economics  has 
no  mysteries  to  speak  of.  I  buy  and  sell  for  my  own 
advantage,  which  proves  in  the  nature  of  things  to  be  for 
the  equal  advantage  of  my  compeer.  It  is  my  business 
and  my  compeer's  business  and  every  other  man's  business 
who  buys  and  sells,  to  pick  that  action  out  in  its  motive 
and  result  from  the  great  mass  of  dubious  actions,  and  to 
set  it  up  in  its  own  light,  to  rejoice  in  it  as  the  clearest 
thing  in  social  action,  to  claim  it  as  God's  own  plan  so  far 
forth  for  our  comfort  and  progress,  and  then  to  see  to 
it  that  no  preposterous  hand  mixes  it  up  with  perplexities 
or  theologies  or  other  abominations  —  muddying  with  a 
tentative  pole  the  stream  of  our  clear  brook !  In  this 
country  at  least,  in  its  ignorance  of  common  things  and 
common  science,  the  pulpit  often  fulminates  against  the 
gains  of  exchange  as  "  materialism,"  and  mixes  up  buying 
and  selling  with  "  worldliness,"  and  only  half  permits  its 
deluded  hearers  the  privileges  of  the  market,  and  illustrates 
again  in  modern  times  such  teaching  as  is  denounced  to 
St.  Timothy,  — u  some  swerving  turned  aside  to  vain  bab- 
bling, desiring  to  be  teachers  of  the  Laiv,  understanding 
neither  what  they  say,  nor  whereof  they  affirm"  "Let  every 
shoemaker  stick  to  his  last."  Those  who  have  looked  into 


PERSONAL   SERVICES.  243 

it  with  any  care  have  found,  that  Exchange  in  all  its  natu- 
ral outgoings  is  not  answerable  to  these  pulpit  charges,  nor 
is  contrary  to  the  letter  or  spirit  of  the  biblical  precepts, 
but  on  the  other  hand  is  in  full  harmony  with  the  claims 
of  Conscience  and  with  all  the  inbreathings  and  aspirations 
of  Christianity. 

(b)  The  second  practical  remedy  for  the  labor-difficul- 
ties arising  from  the  want  of  thorough  understanding  by 
both  parties  of  the  real  nature  of  hired  renderings  of  the 
second  class,  is  fair  common  honesty.  More  of  an  easily 
accessible  intelligence,  more  of  penetration  and  separation 
as  to  social  relations  in  general,  meets  the  first  point ;  but 
quite  as  needful  as  this  simple  intellectual  process,  is  the 
still  simpler  moral  habit  of  doing  just  what  one  has  agreed 
to  do,  without  evasions  and  without  diminutions.  Labor 
difficulties  take  their  origin  more  often,  perhaps,  in  some 
clouded  moral  action  of  one  of  the  parties,  than  in  a 
clouded  mental  apprehension.  Men  are  too  conscious  as 
men  of  their  own  temptations,  to  be  lax  in  their  pledged 
renderings  and  of  their  own  shortcomings  at  this  point, 
not  to  be  suspicious  of  each  other  as  buyers  and  sellers, 
for  fear  the  party  of  the  other  part  is  about  to  withdraw 
something  either  in  quantity  or  quality  of  what  he  has 
promised  to  render ;  there  is  almost  always  something  or 
other  to  give  color  to  such  a  suspicion,  and  it  grows  by 
what  it  feeds  on ;  frank  explanations  are  not  had  at  the 
outset,  and  a  good  understanding  is  not  come  to,  as  it 
doubtless  might  be  in  nine  cases  out  of  ten ;  and  the  little 
cloud,  at  first  no  bigger  than  a  man's  hand,  by  and  by 
becomes  black  and  threatening,  and  bursts  at  last  in  a 
strike  or  lock-out  of  large  proportions.  An  open  honesty 
that  is  such  and  seems  such,  that  is  not  beyond  the  aim  and 
reach  of  common  men,  that  is  taught  in  scores  of  forms  in 
"Poor  Richard's  Almanack,"  and  that  each  man  ever  likes 


244  PKINCIPLES   OF   POLITICAL  ECONOMY. 

to  meet  with  and  so  ought  ever  to  put  forth,  is  in  fact  a  pre- 
ventive of  conflicts  between  laborers  and  employers,  and 
would  if  properly  manifested  have  prevented  multitudes 
of  such  actual  conflicts.  Here  is  the  main,  almost  the  sole, 
point  of  contact  between  strict  Ethics  and  the  Economics. 
What  buyers  and  sellers,  that  is  to  say,  the  whole  prac- 
tical world,  needs,  is  not  disquisitions  on  Morals  from  Press 
or  Pulpit,  but  an  inner  ear  to  hear  the  true  click  of 
Conscience,  and  the  quick  and  open  answer  in  honest 
action. 

(2)  A  second  general  cause  of  the  Labor-troubles  of  the 
past  and  present  has  been  a  strong  tendency  to  neglect  the 
special  preparation  for  their  peculiar  functions .  by  both 
capitalists  and  laborers.  A  successful  employer  of  laborers 
year  in  and  year  out  to  their  advantage  and  his  own  is 
always  one  who  has  been  trained  to  that  function  by 
special  preparations.  He  is  a  living  man  with  all  the  lim- 
itations of  living  men :  he  has  to  deal  with  many  living 
men  with  all  their  imperfections :  he  has  to  deal  also,  and 
constantly,  with  what  is  in  its  own  nature  dead,  namely, 
Capital,  always  either  a  commodity  or  a  claim :  to  animate 
and  invigorate  these  dead  forms  of  value,  to  put  them  into 
vital  connection  with  living  men  who  shall  enhance  their 
value,  and  thus  to  become  a  leader  to  living  men  as 
towards  swelling  interests,  demands  unusual  native  gifts 
and  a  special  long-continued  training.  When  one  looks 
from  without  upon  such  an  establishment  as  this  in  full 
action,  it  seems  automatic,  it  seems  as  if  almost  anybody 
with  a  clear  head  could  continue  to  direct  it ;  and  when 
this  "  captain  of  industry "  departs  this  life,  perhaps  his 
son  or  some  previous  subordinate,  without  the  proper  gifts 
and  at  least  without  the  peculiar  training,  assumes  the 
post  of  direction.  For  a  little  everything  seems  to  go  on 
as  before.  As  sure  as  fate,  however,  a  friction  will  soon 


PERSONAL   SERVICES.  245 

develop  here,  and  a  misunderstanding  there,  there  will  be 
whisperings  among  the  men,  some  breath  of  suspicion 
will  be  likely  to  cloud  the  borrowing-power,  opening 
difficulties  of  any  kind  such  as  loss  of  credit  or  a  weaken- 
ing of  the  usual  markets  are  apt  to  throw  a  new  operator 
more  or  less  off  his  base,  and  gathering  labor-troubles  of 
any  sort  commonly  find  such  a  man  unprepared  for  lack 
of  suitable  training  and  experience  to  ward  them  off  or  to 
make  timely  concessions  to  the  men  or  to  minimize  the 
evil  results  when  these  become  inevitable. 

Also  labor-troubles  are  quite  as  likely  to  arise  from  the 
want  of  character  and  training  and  considerateness  of  the 
employees  towards  the  capitalists.  The  relations  are 
reciprocal  and  they  are  also  in  their  very  nature  delicate. 
One  poor  workman  however  good  his  disposition,  one 
unfaithful  overseer  no  matter  how  great  his  possible  skill, 
may  mar  the  current  product  in  such  a  way  as  to  lose  it 
the  market  and  cost  the  establishment  the  present  profit. 
The  strength  of  a  chain  is  the  strength  of  its  weakest  link. 
It  is  a  matter  of  immense  difficulty  at  any  time,  and 
emphatically  so  at  the  present  time  to  organize  a  working 
force  in  factory  from  top  to  bottom  so  as  to  have  it  go 
forward  as  a  unit  as  towards  the  marketing  of  the  product, 
without  bad  workmanship  at  some  point  and  unskilful 
supervision  at  another ;  because  the  laborers  as  a  rule  have 
not  given  themselves  time  to  learn  thoroughly  their  special 
parts,  because  they  are  not  content  to  remain  steady  at  one 
thing  and  at  one  place,  and  because  they  do  not  practically 
recognize  even  if  they  perceive  it  that  their  own  permanent 
interests  are  exactly  coincident  with  the  permanent  inter- 
ests of  their  employers.  Just  now  in  this  country  the 
public  Law  robs  the  manufacturers  (at  their  own  behest) 
of  their  best  markets  at  home  and  abroad,  makes  it  difficult 
or  impossible  for  them  through  wanton  taxation  of  their 


246  PRINCIPLES   OF   POLITICAL  ECONOMY. 

raw  materials  to  create  a  good  quality  of  goods  for  any 
market,  and  so  multiplies  frictions  and  failures  and  losses 
along  the  whole  line  of  production.  The  lack  of  what 
may  be  called  Apprenticeship  on  the  part  of  skilled  labor- 
ers, the  consequent  difficulty  of  rising  from  one  gradation  of 
effort  to  a  higher  and  better-paid  one,  the  restlessness  of 
native  laborers  under  such  disabilities,  the  rapid  admixture 
of  foreigners,  the  lack  of  coherence  throughout  in  point  of 
intelligence  and  apparent  identity  of  interests,  together 
with  the  instability  and  haphazardness  of  the  resources  and 
personal  training  of  the  employers  as  a  class,  gives  birth  to 
Labor-troubles  which  are  at  the  same  time  Capital-troubles, 
to  read  the  daily  record  of  which  makes  one  sick  at  heart, 
(a)  The  only  possible  and  practicable  remedy  for  this 
state  of  things,  so  far  as  the  employers  are  concerned,  is  in  a 
more  conservative  attitude  of  capitalists  as  a  class  about 
passing  over  their  resources  to  the  hands  of  men  who  have 
not  proven  their  ability  to  handle  them  wisely  by  a  full 
course  of  training  in  the  management  of  practical  affairs. 
By  a  wretched  policy  in  this  country  at  present  Capital  is 
prohibited  from  building  and  from  buying  ships,  with  which 
to  navigate  the  oceans ;  from  selling  domestic  manufac- 
tures in  foreign  markets ;  and  also  from  a  profitable  agri- 
culture, which  may  sell  its  products  abroad  and  take  its 
pay  back.  Consequently  Capital,  eager  in  its  own  nature 
to  be  invested  to  a  profit  somehow  somewhere,  has  rushed 
without  due  circumspection  into  the  hands  of  domestic 
operators,  who  have  not  been  half  fitted  for  their  task, 
who  have  knitted  relations  with  laborers  without  being 
able  to  secure  their  permanent  respect  or  to  control  their 
services,  and  who  have  lost  to  their  owners  in  multitudes 
of  cases  the  entire  capital  intrusted  to  them.  If  capitalists 
had  had  during  the  last  quarter  of  a  century  one-half  of 
their  natural  and  proper  chance  to  invest  their  money  to  a 


PERSONAL  SERVICES.  247 

profit,  there  would  not  have  been  such  a  reckless  invest- 
ment through  incompetent  hands  in  building  mills  and 
foundries  in  this  interval  of  time,  and  such  wholesale 
losses  in  connection  with  them.  When  capital  comes  to 
be  at  liberty  to  turn  right  or  left  according  to  its  own  will 
in  view  of  a  prospective  profit,  factory  companies  and  pro- 
jectors cannot  draw  resources  from  the  public  for  their 
operations,  without  demonstrating  to  the  owners  the  trained 
and  tried  capacity  of  the  practical  operators,  who  will  buy 
the  materials  and  hire  the  laborers  and  market  the  products, 
(b)  The  practical  remedy  for  the  inexperience  and  insta- 
bility and  unskilfulness  of  laborers  as  tending  towards 
labor-troubles  of  all  kinds  and  degrees,  is  only  to  be  found 
in  a  want  of  market  for  such  services.  In  a  natural  and 
wholesome  state  of  things,  such  as  would  exist  in  the 
United  States  were  it  not  for  national  laws  tampering 
with  Trade  and  with  Money,  the  questions  asked  an 
applicant  for  skilled  work  by  any  labor-taker  would  be, 
"  What  have  you  learned  to  do  ?  How  long  and  for  what 
pay  do  you  want  to  do  it  ?  What  do  you  want  to  reach  next, 
when  the  present  job  is  done  ?  "  When  employment  turns 
on  good  answers  to  such  questions  as  these,  and  when  the 
questions  themselves  are  put  in  good  faith,  there  will  be 
an  end  of  Strikes  and  Lockouts.  Untrained  and  restless 
hands  will  get  nothing  to  do  in  mills  and  factories. 
Apprenticeship  in  its  various  forms  will  come  back  into 
vogue,  and  will  probably  be  made  a  part  of  the  course  in 
public  schools.  The  division  and  gradation  of  laborers 
will  be  carried  out  further  than  it  ever  yet  has  been. 
Laborers  will  then  be  organized  in  the  best  sense  of  that 
word,  and  to  the  best  advantage  of  capitalists.  The  per- 
manent Supply  of  skilled  laborers  will  be  constantly 
adjusting  itself  to  a  permanent  and  increasing  Demand  for 
them.  And  it  requires  no  millennium  for  such  a  state  of 


248  PRINCIPLES  OF  POLITICAL  ECONOMY. 

things  to  come  in.  It  requires  nothing  but  an  ordinary 
and  enlightened  and  beneficent  selfishness  on  the  part  of 
capitalists  to  adjust  itself  to  the  ordinary  selfishness  of 
laborers  sure  to  become  enlightened  and  beneficent  to  the 
best  and  ever-growing  interests  of  both  parties.  This  is 
not  the  spoken  word  of  Morality,  still  less  is  it  the  divine 
word  of  Religion,  it  is  only  the  common  programme  of  a 
common-sense  Political  Economy. 

(3)  The  third  and  last  general  cause  of  misunderstand- 
ings and  embittered  disputes  as  between  laborers  and 
capitalists  is  partly  economical  and  partly  moral,  and  con- 
sequently the  remedy  for  it  is  partly  moral  and  partly 
economical.  The  Past  projects  itself  down  into  the  Present 
partly  with  blessings  and  partly  with  curses.  In  the  old 
times  under  Slavery  and  Feudalism  the  laborer  always 
came  forward  to  his  task  with  a  taint  upon  him.  Some- 
times the  taint  attached  to  his  birth,  and  at  all  times  it 
attached  to  his  calling.  Slavery  in  all  its  forms  always 
makes  manual  labor  degrading.  The  courtly  Cicero  apol- 
ogizes in  a  letter  to  his  friend  for  his  open  sorrow  over  the 
death  of  his  favorite  slave ;  and  in  several  passages  of  his 
treatise  on  Morals  he  follows  his  Greek  teachers,  Plato  and 
Aristotle,  and  declaims  in  a  pitiful  way  against  the  noble 
rights  of  laborers.  "  All  artisans  are  engaged  in  a  degrading 
profession"  Again,  "there  can  be  nothing  ingenuous  in  a 
workshop"  When  trade  and  commerce  are  carried  on 
on  a  small  scale,  "  they  are  to  be  regarded  as  disgraceful "  ; 
when  on  a  large  scale,  "  they  must  not  be  greatly  condemned 
— non  admodum  vituperanda  !  "  (I,  42.) 

Serfdom  once  existed  in  England,  and  threw  its  shade 
over  free  laborers  there  long  after  itself  had  disappeared. 
A  class  of  indented  servants  pervaded  all  the  New  England 
Colonies,  and  a  clause  of  the  New  England  Confederation 
of  1643  provided  for  their  forced  rendition  from  Colony  to 


PERSONAL   SKUV1CKS.  *J|1« 

Colony,  and  passed  over  almost  verbally  into  the  Consti- 
tution of  the  United  States  of  1787  as  applicable  to  the 
slaves  of  the  South.  In  this  way  in  all  parts  of  this 
country  manual  laborers  came  to  bo  more  or  less  oft1  color, 
and  this  has  continued  in  a  continually  lessened  degree  till 
this  time.  When  those  who  work  with  their  hands  are 
looked  down  upon  by  those  who  do  not,  two  sets  of  feelings 
are  apt  to  be  engendered  equally  unfortunate  to  the  two 
classes  that  entertain  them.  The  non-manual  workers,  the 
employers,  are  more  or  less  puffed  up  with  pride  and  a 
sense  of  superiority  (there  are  beautiful  exceptions)  as 
towards  their  laborers,  and  the  latter  in  their  turn  are  apt 
to  develop  alongside  an  unmanly  servility  and  an  apparent 
deference,  a  sort  of  secret  breasting  up  of  hostility  and 
defiance,  which  is  sure  to  manifest  itself  when  labor 
troubles  come  on  even  when  it  has  not  helped  to  brood 
these  troubles  into  life.  The  parties  then  are  not  well 
placed  as  towards  each  other  to  negotiate  and  to  com- 
promise and  to  coalesce  in  a  future  harmony.  The  party 
of  the  first  part  is  too  proud  to  yield  to  their  inferiors,  and 
the  party  of  the  second  part  is  too  bitter  to  be  sweetened. 
\Vlio  is  sufficient  for  these  things?  And  what  is  the  rem- 
edy for  them  ? 

(a)  So  far  as  employers  are  concerned,  their  natural 
though  unreasonable  and  provoking  arrogance  may  well  be 
reduced  by  the  economical  reflection,  that  the  laborers  are 
exactly  as  necessary  to  production  as  the  capitalists  are, 
that  the  two  stand  on  a  precise  level  so  far  as  the  product 
goes,  that  each  is  one  blade  of  the  shears  and  the  other  the 
other  and  that  it  takes  both  blades  to  cut  anything,  that 
while  the  laborers  are  sellers  in  the  open  market  the 
capitalists  are  likewise  sellers  and  that  the  same  ultimate 
purchaser  furnishes  the  market  for  both  sets  of  sellers,  that 
as  sellers  they  are  only  equal  in  position,  that  buying  and 


250  PRINCIPLES   OF   POLITICAL   ECONOMY. 

selling  is  a  levelling  as  well  as  an  uplifting  process  the 
world  over,  and  that  as  such  co-equal  partners  in  one 
indivisible  operation  all  haughtiness  on  one  side  and  all 
undue  humility  on  the  other  is  nothing  but  obstacle  as 
towards  the  common  end ;  and  also  by  the  moral  and  social 
reflection,  that  their  laborers  are  just  such  men  as  them- 
selves in  motive  and  action,  that  the  two  are  very  likely  to 
exchange  places  with  each  other  before  very  long,  that 
riches  are  extremely  liable  to  take  to  themselves  wings 
and  fly  away,  that  Christianity  is  no  respecter  of  persons, 
that  humanity  deems  nothing  human  alien  from  itself,  that 
morality  puts  the  golden  rule  upon  the  fore-front  of  its 
precepts,  and  that  whatever  may  unite  any  body  of  men 
in  a  legitimate  purpose  of  achievement  along  any  line  of 
human  action  multiplies  the  power  of  each  individual  and 
exalts  his  standing  and  responsibility  as  such  individual 
and  thus  reduplicates  the  reward  of  his  individual  action, 
(b)  So  far  as  the  employees  are  concerned,  in  any  tem- 
porary sense  of  dependence  or  even  of  injustice,  there  is 
open  to  them  the  economical  reflection  (and  it  will  do 
them  good  to  bring  it  home)  that  their  best  route  to 
the  respect  and  favor  and  feeling  of  equality  of  their 
employers  is  through  the  excellence  of  the  service  they 
render  them  and  the  courtesy  (not  servility)  with  which 
they  render  it,  that  as  every  capitalist  becomes  such  by 
means  of  abstinence  they  may  themselves  by  saving  become 
capitalists,  that  there  is  nothing  in  the  nature  of  their 
work  or  its  relations  to  capital  to  cause  them  to  hang  down 
their  heads,  that  handsome  is  that  handsome  does,  that  the 
opportune  offer  of  the  present  capital  to  work  on  gives 
them  a  chance  to  exhibit  their  skill  and  to  earn  a  living, 
that  the  capitalists  are  just  as  dependent  on  them  as  they 
upon  those,  and  that  as  single  sellers  of  a  valuable  personal 
service  they  daily  confront  on  a  footing  of  equality  the 


PERSONAL   SERVICES.  251 

sellers  of  a  valuable  product  so  created;  and  there  is  open 
to  them  also  the  moral  and  social  reflection  fortified  by 
constant  observation  and  experience,  that  no  matter  where 
a  man  begins  it  is  the  end  that  crowns  his  work,  that  life 
to  all  is  a  series  of  stepping-stones,  that  manly  qualities  are 
appreciated  everywhere,  that  character  tells  in  the  lowest 
position  however  high  and  low  are  reckoned,  that  the  poor 
gain  and  hold  friends  quite  as  well  as  the  rich,  that  there 
was  a  certain  poor  wise  man  that  saved  the  city  by  his 
wisdom  and  gained  a  lasting  record  in  consequence,  that 
the  poor  and  the  rich  are  constantly  changing  places  in 
this  world,  and  that  there  is  no  respect  of  persons  with 
God. 

We  may  see  now  what  we  are  to  think  of  some  popular 
remedies  constantly  recommended  for  low  Wages.  A 
brief  discussion  of  what  is  false  will  give  us  a  stronger 
hold  of  what  is  true.  The  chapter  will  close  with  relevant 
reference  to  three  current  remedies. 

1.  It  is  being  dinned  into  the  ears  of  the  present 
generation,  that  Government  has  large  functions  in  the 
ongoings  of  business,  that  it  ought  sometimes  to  interfere 
to  better  the  rate  of  Wages,  at  least  to  designate  a  mini- 
mum below  which  they  shall  not  go,  and  that  Government 
should  hold  itself  ready  to  undertake  directly  to  carry  on 
certain  branches  of  business  under  certain  circumstances. 
This  scheme  goes  under  the  high-sounding  name  of  Nation- 
alism. Richard  T.  Ely,  Professor  of  Political  Economy  in 
Johns  Hopkins  University,  is  one  of  the  most  prominent 
representatives  at  present  of  this  school  of  thought.  In 
his  Introduction  to  Political  Economy  just  published 
(1889),  he  lays  down  this  principle  :  "  When  for  any  class 
of  business  it  becomes  necessary  to  abandon  the  principle  of 
freedom  in  the  establishment  of  enterprises,  this  business 
should  be  entirely  turned  over  to  Government,  either  local, 


252  PRINCIPLES   OF   POLITICAL   ECONOMY. 

state,  or  federal,  according  to  the  nature  of  the  undertaking." 
He  begins  his  book  by  attempting  to  hammer  in  the 
"  lesson  "  that  as  Civilization  improves,  cooperation  takes 
the  place  of  individualism.  The  golden  age  of  individu- 
alism, he  says,  is  among  the  wild  tribes  of  Australia. 
They  never  cooperate  with  each  other  in  their  economic 
efforts,  or  in  anything  else.  No  one  expects  anything 
from  his  neighbor,  and  every  one  does  unto  others  as  he 
thinks  they  would  do  to  him.  The  life  there  is  one  pro- 
longed scene  of  selfishness  and  fear.  But  as  civilization 
comes  in,  he  says,  individualism  goes  out,  and  cooperation 
takes  its  place.  The  fine  old  Bentham  principle  of  laissez 
faire,  which  most  English  thinkers  for  a  century  past  have 
regarded  as  established  forever  in  the  nature  of  man  and 
in  God's  plans  of  providence  and  government,  is  gently 
tossed  by  Dr.  Ely  into  the  wilds  of  Australian  barbarism. 

There  are  some  propositions  that  are  certainly  true,  and 
one  of  them  is,  that  no  man  can  write  like  that,  who  ever 
analyzed  into  their  elements  either  Economics  or  Politics, 
who  ever  gained  a  clear  conception  of  the  sphere  of  either 
science  in  its  relation  to  the  other,  or  who  ever  saw  dis- 
tinctly the  relations  of  either  to  the  nature  of  Man.  The 
sole  motive  in  Buying  and  Selling  is  the  gain  of  the  indi- 
vidual, each  for  and  by  himself.  That  always  was  the 
motive,  is  now,  and  always  will  be.  No  complications  of 
modern  business,  no  complexities  of  credit,  no  combina- 
tions of  capitalists  or  laborers,  ever  altered  or  ever  can 
alter  one  particle  the  motives  of  men  in  buying  and  selling. 
In  a  natural  and  progressive  state  of  things,  Individualism, 
instead  of  going  out,  comes  more  and  more  into  play, 
through  the  Division  of  Labor  and  the  falling  of  all  sorts 
of  services  more  and  more  into  specialties.  To  talk  glibly, 
as  Professor  Ely  does,  about  Government  taking  up  easily 
and  carrying  on  in  a  better  way  and  to  better  ends 


PERSONAL   SERVICES.  253 

branches  of  pure  business  as  they  are  dropped  or  forced 
from  the  hands  of  Individuals,  is  ignorance  at  once  and 
alike  of  the  real  nature  of  Government  and  of  Business. 
Let  us  look  at  a  few  of  the  native  incongruities  and  logical 
fallacies  of  this  nationalistic  position. 

(1)  What  is  human  Government?  Is  there  anything 
substantive  and  continuous  in  its  personnel  and  purposes, 
as  there  is  in  the  government  of  God?  Is  government 
anything  more,  can  it  be  anything  more,  than  a  transient 
Committee  of  the  citizens  charged  and  changed  to  do  in 
certain  few  particulars  the  changing  will  of  a  Majority? 
Government  is  indeed  a  necessity,  as  men  are,  to  restrain 
the  lawless,  and  to  shape  the  ends  of  the  law-abiding ;  but 
it  has  to  be  administered,  if  at  all,  by  precisely  the  same 
kind  of  men  as  the  rest  are,  chosen  for  brief  periods,  their 
duties  sharply  prescribed  by  constitution  or  custom,  and 
impeachments  or  other  punishments  provided  for  them 
when  they  transgress.  One  President  of  the  United 
States  and  one  Judge  of  its  Supreme  Court  have  already 
been  solemnly  impeached  by  the  sovereign  people  them- 
selves. 

Government,  then,  is  an  Agent,  and  nothing  more. 
Even  nationalists  will  not  contend  for  the  divine  right  of 
kings.  And  the  duties  of  every  decent  government  on 
earth  are  political  in  their  character.  The  agents  are 
chosen  and  dismissed  with  a  direct  reference  to  that  kind 
of  action.  Politics  has  a  sphere  wholly  distinct  from 
Economics.  The  true  and  only  end  of  politics  is  the  great- 
est good  of  the  greatest  number,  so  far  as  that  end  can  be 
mediated  by  governmental  agents  of  the  people.  Individ- 
ualism as  such  does  indeed  sink  out  of  sight  under  a  true 
Politics,  and  the  inalienable  rights  of  one  are  maintained  for 
the  sake  of  and  in  consistency  with  the  greater  rights  of  all. 
But  Economics  is  all  individuals  from  beginning  to  end. 


254  PRINCIPLES   OF   POLITICAL  ECONOMY. 

"It  takes  two  to  make  a  bargain."  Only  two.  Each  of 
the  two  has  his  own  motive,  estimates  for  himself,  gives 
and  takes  for  himself,  and  enjoys  alone  his  own  gain.  All 
this  is  involved  in  the  very  idea  of  Property,  which  is 
derived  from  proprius,  and  which  means  one's  own.  How 
illogical,  then,  and  incongruous,  to  suppose,  that  a  set  of 
limited  human  agents  briefly  trained  to  purely  political 
action,  and  liable  to  be  turned  out  of  office  by  overy  change 
in  party  administration,  can  be  competent  at  the  same 
time  and  in  addition  to  perform  economical  functions  for 
the  people ! 

Notice,  too,  that  governmental  agents  in  all  good  coun- 
tries are  already  overburdened  with  their  mere  political 
duties.  Work  is  behindhand  in  every  portfolio,  on  every 
court  calendar,  and  in  every  legislative  body,  in  Christen- 
dom. How  absurd  it  is,  therefore,  to  talk  about  throwing 
upon  shoulders,  already  overburdened,  additional  loads  of 
a  different  kind,  for  which  shoulders  and  heads  are  wholly 
unfitted  ! 

Why  not,  then,  inquires  our  nationalist  innovator,  or- 
ganize new  bureaus  to  undertake  in  their  behalf  the  buy- 
ing and  selling  of  the  people  ?  Ah  !  Who  pays  the  taxes 
needful  for  the  support  of  the  present  political  bureaus? 
And  who  would  have  to  pay  the  taxes  needful  for  the  sup- 
port of  the  new  economical  bureaus?  Besides  not  having 
any  substantive  existence  of  its  own  Government  has  not 
one  cent  of  money,  except  what  the  people  voluntarily 
pay  in  taxes  out  of  their  own  personal  gains,  in  order  to 
maintain  their  own  agents  to  do  certain  political  things  for 
them,  which  they  cannot  do  as  well  for  themselves  directly  ; 
and  when  it  comes  to  the  cold  question  for  the  people  them- 
selves to  answer,  whether  they  will  organize  a  new  set  of 
hired  men  to  do  their  trading  for  them,  and  pay  them  for 
doing  this  out  of  aggregate  gains  certainly  to  be  vastly 


PERSONAL   SERVICES.  255 

diminished  by  the  process,  our  nationalistic  leaders  will 
perhaps  find  out  that  the  people  have  common  sense, 
whether  the  said  leaders  have  it  or  not. 

But  the  damning  difficulty  with  this  governmental  busi- 
ness association  is,  after  all,  in  the  inevitable  lack  of  motive 
on  the  part  of  the  hired  men  doing  the  buying  and  selling. 
It  is  an  honor  to  human  nature,  that  hired  men  never  have 
and  never  can  have  the  zeal  and  enterprise  of  principals 
and  owners  to  forecast  and  to  perform  and  to  lay  up;  be- 
cause it  shows  that  man  is  a  rational  animal,  made  in  the 
image  of  his  Maker,  always  acting  under  the  pressure  of 
personal  motives,  and  always  estimating  what  is  his  own 
more  highly  than  what  belongs  to  another.  Business 
motives  act  in  their  fulness  only  on  the  individual,  whose 
is  the  effort  and  whose  is  the  return.  Any  policy  what- 
ever on  the  part  of  Government,  which  lessens  the  number 
and  the  eagerness  of  individual  operators  in  favor  of  great 
artificial  combinations  resting  in  the  shadow  of  the  Law, 
lessens  of  necessity  the  gains  of  exchanges,  and  the  prog- 
ress of  the  nation,  because  it  lessens  of  necessity  the  press 
of  motive  on  the  many  to  work  and  save. 

Government,  accordingly,  is  quite  too  far  off  in  every 
respect  from  the  business,  that  is  to  say,  from  the  buying 
and  selling  of  the  people,  to  undertake  any  branch  of  it 
when  "  it  becomes  necessary  to  abandon  the  principle  of 
freedom  in  the  establishment  of  enterprises."  It  will  then 
be  high  time  to  "  abandon  "  the  "  enterprises  "  themselves. 
If  the  "  principle  of  freedom "  cannot  compass  the  "  es- 
tablishment of  enterprises,"  is  it  likely  that  the  "principle  " 
of  secondary  and  irresponsible  agents  can  do  it  ?  To  show 
the  people  how  to  make  their  bargains,  how  to  buy  and 
sell  and  save  and  spend,  is  a  function  government  is  not 
fitted  for,  was  not  established  to  perform,  and  never  under- 
took without  making  a  botch  of  it. 


256  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Ill  the  Preamble  of  the  Constitution  of  the  United 
States  there  is  a  careful  and  complete  and  elegant  enumer- 
ation of  the  purposes,  which  the  body  of  the  instrument 
was  designed  to  attain.  These  purposes  are  six.  No  one 
of  them  contains  even  a  hint  of  any  purpose  to  enter  upon 
the  "  establishment  of  enterprises,"  still  less  of  any 
necessity  "  to  abandon  the  principle  of  freedom."  The 
last  of  these  six  purposes  is  phrased :  "  AND  TO  SECURE 

THE    BLESSINGS    OF     LIBERTY    TO    OURSELVES    AND    OUR 

POSTERITY."  The  liberty  to  buy  and  sell  freely  was  pre- 
cisely that  "  liberty "  of  the  Colonies  which  was  most 
threatened  and  infringed  by  the  British  Government,  to 
vindicate  that  special  "  liberty  "  was  the  chief  cause  of 
the  American  Revolution,  and  "  to  secure  the  blessings  "  of 
that  and  other  forms  of  similar  "  liberty "  was  the  final 
purpose  of  the  Constitution  of  the  United  States. 

It  is  true  indeed  that  the  Constitution  empowers  Con- 
gress, a  creature  of  the  People,  "to  establish  Post  Offices 
and  Post  Roads  "  ;  but  the  purpose  of  this  was  political, 
and  not  pecuniary ;  it  was  to  bind  all  the  States  together  in 
one  Union  of  intelligence  and  intercourse ;  it  was  to  keep 
the  outlying  and  distant  parts  in  touch  with  the  central 
and  seaboard ;  it  is  not  in  any  sense  a  "  business  "  enter- 
prise ;  the  department  of  the  mails  is  not  now  and  never 
has  been,  for  any  length  of  time,  self-supporting ;  and  it 
illustrates  through  and  through  in  its  "  Star  route  frauds  " 
and  other  contracts,  in  its  appointment  and  removal  of  post- 
masters, and  in  the  sickening  dependence  of  primal  Service 
of  the  people  on  partisan  and  corrupting  impulses,  many 
of  them  inherent  evils  of  the  much-vaunted  Nationalism. 

But  besides  all  these  vital  and  political  objections  to 
the  assumption  on  the  part  of  government  of  any  direct 
industrial  functions  whatever,  there  remains  two  other 
fundamental  objections,  of  which  the  first  is,  that  our 


PERSONAL   SERVICES.  257 

national  government  has  received  no  powers  to  any 
such  end,  and  is  emphatically  ^prohibited  in  the  Constitu- 
tion itself  from  exercising  them  :  —  "  THE  POWERS  NOT 
DELEGATED  TO  THE  UNITED  STATES  BY  THE  CONSTITUTION, 
NOR  PROHIBITED  BY  IT  TO  THE  STATES,  ARE  RESERVED  TO 
THE  STATES  RESPECTIVELY  OR  TO  THE  PEOPLE." 

(2)  The  second  remaining  objection  is,  that  such  pro- 
posed action  of  government  could  have  no  tendency  at  all 
either  to  enlarge  the  Wages-portion,  or  to  increase  the 
industrial  efficiency  of  the  laborers,  or  to  diminish  the 
number  of  competitors  at  any  one  point  of  the  wages- 
scale.  As  a  matter  of  fact,  such  governmental  action  would 
have  precisely  the  opposite  effect  at  each  of  these  three 
vital  points  of  wages :  employers  would  have  less  motive 
to  swell  the  wages-portion,  laborers  less  motive  to  improve 
their  capacity,  and  more  motive  to  congregate  locally. 
Suppose,  that  at  some  given  point  in  the  scale  of  wages, 
free  and  intelligent  competition  has  been  had  on  both  sides, 
and  that  the  average  rate  of  wages  as  thus  determined 
proves  one  dollar  per  day  for  each  laborer.  Suppose 
further,  that  everybody  outside  the  employers  thinks  this 
is  quite  too  little,  and  that  government  accordingly  issues 
a  decree  that  wages  at  that  point  must  be  thereafter  one 
dollar  and  a  half  per  day.  That  decree  can  have  no  ten- 
dency at  all  to  enlarge  the  wages-portion  of  those  particular 
employers,  because  that  has  already  been  determined  for 
the  next  industrial  cycle  by  the  general  productiveness  of 
the  cycle  last  past,  and  by  the  last  division  under  free  com- 
petition between  wages  and  profits;  if,  therefore,  the 
decree  were  carried  out,  as  it  never  practically  could  be, 
the  result  would  be  that  only  two-thirds  of  the  laborers 
previously  employed  could  be  employed  then  at  all,  and  the 
remaining  third  would  certainly  be  worse  off  than  before ; 
and  besides  the  Division  of  Labor  being  necessarily  lessened, 


258  PRINCIPLES    OF   POLITICAL   ECONOMY. 

production  would  be  less  profitable  to  the  employers,  and 
the  next  wages-portion  would  certainly  be  less  than  the 
one  before,  and  thus  the  outcome  of  the  remedy  would  be 
worse  than  the  disease.  Now  let  alone  the  artificial  in- 
terference of  government,  and  all  natural  accessions  to 
Capital  at  that  point,  all  investment  of  profits  in  an  en- 
larged business,  all  saving  from  expenditure  for  the  sake 
of  farther  production,  tend  strongly  of  their  own  accord 
to  enlarge  the  wages-portion,  and  thus,  the  number  and 
intelligence  of  the  laborers  continuing  as  before,  are  sure 
to  raise  the  rate  of  wages.  Or,  if  there  be  no  accessions 
to  Capital,  or  other  influence  swelling  the  wages-portion, 
and  the  number  of  laborers  be  diminished  at  that  point, 
as  by  migration  to  new  fields  of  effort  or  enlistment  in 
armies,  the  competition  of  wages-givers  for  laborers  will  be 
quickened,  and  the  rate  of  wages  will  rise.  Reversed  con- 
ditions will  of  course  give  reversed  results. 

2.  A  second  popular  remedy  for  low  Wages,  not  only 
proposed,  but  also  for  a  long  time  brought  into  practical 
action,  is  Labor-Unions  in  their  various  forms  and  with 
their  manifold  methods  of  operation  upon  employers.  It 
is  important  to  note  here  and  to  remember,  that  the  Guilds 
of  the  mediaeval  times,  from  which  the  modern  Trades- 
Unions  have  borrowed  something  of  form  and  much  of 
nomenclature,  were  in  substance  extremely  different  from 
their  modern  imitators.  Those  were  combinations  of  Mas- 
ters with  their  journeymen  and  apprentices  and  dependents 
in  order  to  control  the  entire  manufacture  and  sale  of  a 
certain  class  of  products,  from  the  name  of  which  the 
Guild  usually  took  its  own  name,  as  "  Cloth-workers' 
guild,"  "  Shoemakers'  guild,"  and  so  on.  Whittier,  him- 
self a  shoemaker  in  his  boyhood,  apostrophizes  the  latter 
guild  in  words  which  more  or  less  describe  them  all :  — 


PERSONAL   SERVICES.  259 

"  Ho !  workers  of  the  old  time  styled 

The  gentle  Craft  of  Leather  ! 
Young  brothers  of  the  ancient  guild, 

Stand  forth  once  more  together ! 
Call  out  again  your  long  array, 

In  the  olden  merry  manner  ! 
Once  more  on  gay  St.  Crispin's  day, 

Fling  out  your  blazoned  banner !  " 

These  masters  thus  organized  with  their  laborers  were 
the  capitalists  of  their  time,  and  in  this  vital  matter  dif- 
fered from  the  Unions  of  to-day,  which  are  made  up  of 
laborers  as  such  organized  to  confront,  and  if  need  be,  to 
antagonize,  capitalists.  A  royal  charter  was  indispensable 
to  the  legal  existence  of  those  craftsmen.  It  took  money 
for  them  to  start  their  guilds,  and  in  progress  of  time  most 
of  them  became  very  rich.  "  A  common  fund  was  raised  by 
contributions  among  the  members,  which  not  only  provided 
for  the  trade  objects  of  the  guild ;  but  sufficed  to  found 
chantries  and  masses,  and  set  up  painted  windows  in  the 
church  of  their  patron  saint.  Even  at  the  present  day  the 
arms  of  the  craft-guild  may  often  be  seen  blazoned  in 
cathedrals  side  by  side  with  those  of  prelates  and  kings." 
This  radical  difference  between  the  two  must  always  be 
borne  in  mind  in  all  arguments  and  inferences  drawn  over 
from  the  mediaeval  "  unions  "  to  those  of  the  present  day. 

Two  points  may  be  freely  conceded  to  these  labor-organ- 
izations before  we  pass  to  the  economic  objections  to  them. 
In  the  first  place,  the  employers  set  the  example  for  the 
employees  in  a  tacit  if  not  open  combination  as  against  the 
employees  in  their  own  interest  and  emolument.  The  so- 
called  "  protective  "  tariff,  for  instance,  is  nothing  in  the 
world  but  a  strongly-linked  combination  of  certain  rich 
capitalists  to  extort  from  the  masses  (their  own  laborers 
included)  artificially  lifted  prices  for  the  necessaries  of 
life;  and  the  certain  result  of  shutting  out  imports  by 


260  PRINCIPLES   OF   POLITICAL   ECONOMY. 

tariff-taxes  is  the  shutting  in  of  would-be  exports,  to  the 
certain  lowering  of  general  wages  in  a  country,  because 
there  is  a  lessened  demand  for  laborers  in  consequence. 
For  a  second  good  instance  of  combinations  as  against 
employees  on  the  part  of  employers,  take  the  well-known 
understanding  among  manufacturers  of  the  same  sort 
of  goods  in  the  same  general  locality,  that  laborers  dis- 
charged from  one  establishment  shall  not  be  hired  in  any 
of  the  rest ;  and  that  if  the  general  voice  call  for  a  "  shut 
down,"  or  for  three-fourths  time  or  less,  all  in  that  line  of 
goods  shall  comply.  How  can  laborers  be  blamed  for 
organizations  in  their  own  behalf  when  they  find  them- 
selves confronted  as  individuals  with  an  organization  of 
employers. 

Then,  too,  it  must  be  acknowledged,  that,  had  it  not 
been  for  united  action  of  some  sort  on  the  part  of  the  la- 
borers, the  unreasonable  hours  of  fifty  years  ago  in  mills  and 
factories  would  probably  not  have  been  shortened  to  this 
day.  Capitalists  as  a  class  are  conservative  of  methods, 
as  well  as  of  ends.  The  cotton  and  woollen  manufacturers 
of  Berkshire  County,  for  example,  who  may  doubtless  be 
taken  as  a  fair  sample  of  the  manufacturers  of  New  Eng- 
land, stiffly  refused  the  demands  of  their  work-people  that 
the  hours  might  be  reduced  from  an  average  of  14  through- 
out the  year  to  an  average  of  11.  When  the  late  Civil 
War  was  going  on,  and  the  manufacturing  became  ex- 
tremely profitable,  and  the  mills  were  more  or  less  depleted 
by  enlistment,  and  the  remaining  hands  felt  more  indepen- 
dent from  the  consequent  rise  of  wages,  the  combined 
demand  in  one  mill  for  fewer  hours  was  reinforced  by 
simultaneous  demands  for  the  same  in  other  mills  in  the 
neighborhood  (the  time  and  manner  having  been  agreed 
upon  beforehand),  and  visits  in  force  by  the  work-peo- 
ple from  mill  to  mill  completed  the  desired  reform.  The 


PERSONAL   SERVICES.  261 

mill-owners  were  sullen  and  indignant,  and  submitted  of 
necessity.  The  work-men  were  right.  The  reform  was 
imperative.  Credit  must  be  given  to  them  for  the  good 
they  have  done  acting  as  a  body  on  this  and  other  occa- 
sions. 

On  the  other  hand,  all  this  is  not  business.  All  this  is 
contrary  to  the  very  old,  and  the  very  good  adage,  that  it 
takes  two  to  make  a  bargain.  If  we  express  this  adage  in 
the  language  of  our  science,  it  will  take  some  such  form 
as  this  :  When  two  men  have  mutual  services  to  exchange, 
let  them  come  to  a  fair  agreement  as  to  the  terms  on 
which  they  will  exchange.  Certainly,  let  each  make 
the  best  terms  he  can,  but  let  the  bargain  always  be  free. 
If  one  party,  who  happens  to  have  the  power  to  do  it,  uses 
anything  like  compulsion  upon  the  other,  it  ceases  so  far 
forth  to  be  a  bargain  at  all,  and  becomes  a  sort  of  robbery, 
of  which  in  some  cases  courts  will  take  cognizance.  Now, 
workmen  bring  a  certain  valuable  service  to  the  market, 
just  such  a  service  as  the  capitalist  wants,  and  he  has  to 
offer  just  such  a  service  as  they  want,  namely,  wages :  let 
the  two  parties  come  to  a  free  and  fair  agreement  on  the 
terms  of  their  exchange  ;  let  each  workman  by  all  means 
make  the  very  best  terms  he  can,  insisting  to  the  last 
penny  on  all  he  can  get  elsewhere,  for  the  value  of  his 
service  is  determined,  as  other  values  are  determined,  by 
what  it  will  bring :  let  the  employer  do  just  the  same  on 
his  side,  and  so  let  a  fair  bargain  for  the  time  present  be 
struck.  This  is  a  very  good  kind  of  striking,  and  the 
more  intelligence  and  skill  and  self-respect  a  workman 
has,  the  better  prepared  he  is  to  strike  the  bargain  and 
secure  his  just  due  by  and  for  himself  alone ;  and  this 
gives  a  good  chance  for  every  man  who  has  any  peculiar 
gift,  who  may  have  surpassed  his  fellows  in  diligence  ami 
skill,  to  secure  a  proportionate  reward  now  and  to  go  on 


262  PRINCIPLES    OF   POLITICAL   ECONOMY. 

higher  in  future ;  all  this  gives  opportunity  for  diversity  of 
relative  advantage,  which,  as  we  have  seen,  lies  at  the  basis 
of  all  exchange,  which  itself  starts  in  individualism  and 
naturally  proceeds  in  a  still  higher  individualism  to  the 
end.  This  is  the  only  way  for  a  laborer  of  talent  and 
diligence  to  secure  fully  what  belongs  to  him  as  a  man  and 
a  workman.  If  he  cannot  get  from  a  given  employer 
what  he  thinks  he  ought  to  get,  what  he  thinks  the  service 
is  worth  in  another  market,  let  him  exercise  his  perfect 
right  to  quit  and  go  elsewhere.  All  this  is  fair  and  above- 
board  and  individual  and  progressive. 

Everybody  knows  that  there  is  a  kind  of  striking  now 
in  vogue  wholly  different  from  this,  in  that  it  brings  a 
sort  of  compulsion  into  play.  A  fair  bargain  should  be 
broken,  if  at  all,  just  as  it  was  made,  with  the  two  parties 
face  to  face,  and  everybody  else  aloof ;  and  a  new  bargain 
should  be  made,  just  as  the  old  one  was,  with  the  tivo  parties 
face  to  face,  and  everybody  else  aloof.  But  a  combina- 
tion among  workmen  to  leave  an  employer  in  the  lurch, 
and  especially  a  combination  which  forces  into  its  ranks 
by  cajoling  or  menaces  those  who  are  unwilling  to  join  it, 
as  is  so  commonly  the  case  in  Strikes,  is  not  only  contrary 
to  the  inmost  nature  of  a  bargain,  but  is  also  of  itself  a 
sort  of  confession  of  the  injustice  of  the  claim.  If  the 
claim  be  just  so  far  as  all  the  individuals  are  concerned, 
there  is  no  occasion  to  extort  it.  If  the  value  of  the 
service  rendered  by  each  be  equal  to  the  sum  demanded, 
and  especially  if  this  can  be  obtained  elsewhere,  which  is 
the  only  gauge  of  the  value  of  any  service  anywhere,  there 
is  no  need  of  conference  and  combination  and  conspiracy. 
Of  course,  this  radical  argument  against  Strikes  implies 
that  employers  of  that  grade  have  not  entered  into  a  com- 
bination not  to  hire  dissatisfied  laborers  from  other  estab- 
lishments ;  if  they  have,  then  the  agreement  can  be 


PERSONAL   SERVICES.  263 

turned  with  equal  force  against  the  employers  themselves, 
for  they  are  resorting  to  means  outside  the  nature  of  a 
bargain,  means  of  the  same  nature  as  a  Strike.  Let,  then, 
each  workman  tell  his  employer  the  present  facts  just  as 
they  are,  and  if  this  appeal  prove  ineffective  to  secure  his 
commercial  right,  let  him  go  quickly  where  he  can  get 
the  most  for  his  service.  That  this  is  not  done,  that 
means  of  the  nature  of  a  threat  are  brought  to  bear  upon 
the  employer,  that  the  justice  of  the  claim  is  not  relied 
on  in  a  case  where  more  than  anywhere  else  justice  can 
enforce  itself,  that  free  and  full  explanations  are  not  had, 
that  no  notice  is  given,  that  great  damage  is  expected  by 
their  action  to  accrue  to  the  employer, — all  this  seems  to 
forget  that  the  transaction  between  employers  and  em- 
ployed is  a  case  of  pure  exchange,  a  simple  bargain  of  one 
service  against  another  service. 

The  above  is  the  universal  and  fundamental  objection 
to  Strikes.  The  remedy  for  economical  evils,  real  or  sup- 
posed, must  ever  be  found  in  economical  considerations.  The 
strong  but  foolish  tendency  of  the  times  is  to  mix  up 
things  that  are  quite  distinct ;  to  try  to  apply  to  the  evils 
of  Trade  the  rules  of  Morals,  which  is  a  useless  task ;  to 
appeal  to  Politics  in  matters  of  pure  Bargain;  and  to 
resort  to  Force  to  cure  the  evils  that  flow  from  the  wholly 
voluntary  action  of  individuals.  This  is  like  the  doctor 
who  would  cure  bodily  ailments  by  mental  and  spiritual 
recipes.  It  has  all  the  absurdities  of  the  late  famous 
"  Mind-cure."  The  mind  is  indeed  higher  than  the  body, 
but  bodily  maladies  must  be  treated  as  such,  or  the 
patient  will  die ;  the  imperatives  of  Ethics  are  certainly 
superior  to  the  profitables  of  Economics,  but  the  latter 
are  well  able  to  take  care  of  themselves  on  their  own 
ground ;  Religion  is  loftier  than  Morals,  but  it  becomes  a 
very  poor  substitute  for  morals  in  the  daily  routine  of  life. 


264 


PRINCIPLES   OF   POLITICAL  ECONOMY. 


Similia  similibus  curantur.  Economical  evils  can  only  be 
removed  by  a  better  Economics  better  applied.  Strikes 
are  an  outside  and  irrelevant  remedy  for  low  Wages. 

A  bad  principle  works  badly  in  practice  of  course ;  the 
principle  that  underlies  strikes  is  so  opposed  to  the  funda- 
mental nature  of  exchange,  that  we  might  know  before- 
hand that  it  would  work  badly ;  and  as  a  matter  of  fact, 
it  does  work  badly  enough  both  upon  employers  and  em- 
ployed, because  strikes  are  certain  to  embitter  the  relations 
between  the  two  classes,  which  ought  always  to  be  cordial 
and  free,  and  especially,  because  strikes  must  work  on  the 
minds  of  the  capitalist  to  lessen  the  Wages-Portion  for  the 
next  industrial  cycle.  Fortunately,  we  possess  authentic 
statistics  gathered  about  Strikes  by  the  Massachusetts 
Bureau  of  Statistics  of  Labor,  and  published  in  detail  in 
the  Report  of  December,  1888.  The  information  given  is 
exact  in  relation  to  five  principal  States,  and  approximate 
in  relation  to  the  other  parts  of  the  United  States.  We 
will  copy  first  the  table  exhibiting  the  Losses  in  six  years 
on  account  of  Strikes  of  both  Employers  and  Employees, 
and  the  outside  assistance  received  by  the  latter :  — 

EMPLOYEES'   Loss  AND  ASSISTANCE  AND  EMPLOYERS'  Loss  IN  THE  FIVE 

PRINCIPAL  STATES  ON  ACCOUNT  OF  STRIKES  AND 

LOCK-OUTS  FOR  1881-1886. 


STATES. 

Employees' 
Loss. 

Employees' 
Assistance. 

Employers' 
Loss. 

Strikes. 
Illinois 

.$6  636  208 

$238,452 

$5,251,829 

Massachusetts 

4,200,489 

266,708 

1,970,881 

New  York,     
Ohio,      

8,581,784 
6,378,757 

726,696 
415,568 

5,966,421 
2,793,427 

Pennsylvania,     
Other  parts  of  the  United  States, 

12,890,346 
13.127,139 

781,338 
895,795 

3,897,757 
10,821,238 

THE  UNITED  STATES,  .     .     . 

$51,814,723 

$3,324,557 

$30,701,553 

PERSONAL   SERVICES.  265 

The  large  percentage  of  establishments  represented  in 
this  table,  in  which  the  strikes  were  ordered  by  labor-organ- 
izations, is  particularly  noticeable.  In  New  York  94.26% 
of  the  establishments  had  strikes  which  were  ordered,  in 
Illinois  83.96%,  in  Massachusetts  81.91%,  and  in  the  United 
States  82.24%.  The  "walking-delegate"  so-called  became 
the  principal  personage  in  all  these  strikes  ;  he  brought  the 
orders  to  the  men  from  the  "central-union"  of  their  special 
organization,  and  became  in  most  cases  the  sole  means  of 
communication  between  the  two.  "  You  are  the  strike" 
exclaimed  the  Lord  Mayor  of  London  the  other  day  to  Mr. 
Burns,  the  walking  delegate  of  the  dock-laborers  now  on 
strike  in  that  city.  That  the  daily  bread  and  home  com- 
forts of  tens  of  thousands  of  men  depend  on  the  secret 
and  irresponsible  decision  of  a  little  knot  of  agitators, 
sending  out  their  verbal  and  often  ambiguous  written  orders 
by  a  walking-delegate  or  two,  is  one  of  the  monstrosities 
of  Strikes  often  witnessed  in  the  United  States.  The  labor- 
ers sometimes  do  not  know  even  the  causes  of  the  strike. 
There  has  been  great  want  and  suffering  for  three  months 
past  among  the  striking  coal-miners  in  the  State  of  Illinois ; 
and  a  brief  editorial  in  the  "  Springfield  Republican  "  of 
Aug.  24,  1889,  describes  the  state  of  things  so  justly,  that 
we  quote  it :  — 

"Ex-Congressman  William  L.  Scott,  who  owns  coal 
mines  at  Spring  Valley,  111.,  has  offered  to  pay  75  cents  a 
ton  for  mining  to  the  strikers  who  in  their  destitution  have 
been  subsisting  for  some  time  on  public  charity.  This  is 
2-j-  cents  a  ton  more  than  the  miners  have  asked  for,  but  it 
is  coupled  with  the  condition  that  each  man  must  seek 
work  individually  and  not  through  some  outside  union 
committee.  Although  the  men  have  been  reduced  to  a 
state  of  abject  want  it  is  said  the  conditions  imposed  will 
prevent  a  settlement.  In  that  case  we  may  conclude  that 


266 


PRINCIPLES   OF   POLITICAL  ECONOMY. 


a  few  well-fed  walking  delegates  are  acting  for  the  men 
and  not  they  for  themselves.  It  is  a  strange  time  to  quib- 
ble over  such  a  matter.  The  worst  and  most  oppressive 
enemy  of  labor  is  the  parasite  who  lives  upon  its  dis- 
tresses." 

A  strike  is  a  state  of  war,  and  like  war,  there  are  two 
parties  to  it,  and  it  cannot  be  expected  that  the  party  of 
the  other  part  should  not  strike  back.  The  "  lock-out "  is 
the  counter-stroke  of  the  capitalist  to  the  "  strike  "  of  the 
laborer.  Lock-outs,  however,  are  comparatively  infrequent. 
Capitalists,  as  a  rule,  are  conservative  and  forbearing. 
Massachusetts  took  the  statistics  of  lock-outs  as  carefully 
as  those  of  strikes,  and  the  following  is  the  table :  — 


STATES. 

Employees' 
Loss. 

Employees' 
Assistance. 

Employers' 
Loss. 

Lock-outs. 
Illinois, 

$533  497 

$5  374 

$347  065 

Massachusetts,   . 

952  310 

136  626 

550  675 

New  York,      

3,150,123 

392,316 

845  262 

Ohio,      

848,829 

231,870 

493,100 

Pennsylvania, 

712  956 

77  038 

237  735 

Other  parts  of  the  United  States, 

1,960,002 

262,814 

988,424 

THE  UNITED  STATES,  .     .     . 

$8,157,717 

$1,106,038 

$3,462,261 

Like  war  too,  strikes  and  lock-outs  are  wasteful  and 
demoralizing  to  both  parties.  Why  should  there  be  a 
resort  to  force  to  settle  an  industrial  dispute  any  more  than 
to  settle  any  other  private  dispute  ?  Will  such  a  resort  be 
long  tolerated  by  public  opinion  in  civilized  countries? 
The  Legislature  of  Massachusetts  in  1886  provided  for  a 
State  Board  of  Arbitration  for  the  settlement  of  differ- 
ences between  employers  and  employees.  The  statute  was 
crude  in  some  respects,  and  the  basis  of  it  not  very  firmly 
fixed  in  the  nature  of  things,  but  the  Bureau  of  Labor 


PERSONAL   SERVICES.  267 

reports  that  it  has  been  justified  by  the  results  in  its  prac- 
tical application  during  the  short  time  of  its  operation. 
The  broad  truth  is,  that  the  value  of  Commodities  and  the 
value  of  Credits  is  now  left  to  the  safe  action  of  Demand 
and  Supply  under  free  competition  in  every  country  in 
Christendom:  why  should  not  the  value  of  Services  be 
left  to  the  same  safe  and  inexorable  action?  Governments 
gave  up  long  ago  all  idea  of  regulating  directly  or  indirectly 
the  prices  of  merchandise  and  the  prices  of  commercial 
claims  of  all  kinds  :  will  they  not  shortly  give  up  also  all 
idea  of  regulating  directly  or  indirectly  the  rates  of  Wages? 
They  will.  The  three  kinds  of  things  bought  and  sold  are 
on  an  exact  level  in  the  nature  of  things,  so  far  as  Govern- 
ment is  concerned.  Wages  are  abundantly  able  to  take 
care  of  themselves  in  the  ordinary  way,  as  goods  do,  and 
stocks  and  bonds ;  and  an  enlightened  Public  Opinion  is 
fast  coming  to  see,  that  a  man's  personal  service  rendered 
needs  no  more  the  oversight  of  the  State  in  its  sale  than 
his  horse,  or  note  of  hand  at  interest.  Strikes,  and  lock- 
outs, and  all  extraordinary  courts  or  boards  to  settle  quar- 
rels between  a  labor-giver  and  a  labor-taker  as  such,  since 
it  is  a  case  of  ordinary  buying  and  selling,  are  foredoomed 
to  pass  out  in  the  good  time  coming. 

Towards  this  good  end  works  strongly  the  common 
futility  of  strikes  and  lock-outs.  Carroll  D.  Wright,  chief 
of  the  Bureau  of  Labor  in  Massachusetts,  now  the  head  of 
the  National  Bureau  of  Labor,  in  his  State  Report  for  1880, 
gave  a  succinct  account  of  all  strikes  in  that  State  from 
their  beginning  in  1830.  They  were  159  in  all,  of  which 
109  were  unsuccessful,  18  apparently  successful,  16  com- 
promised, 6  partly  successful,  and  10  "result  unknown." 
In  Great  Britain  during  the  year  1878,  there  occurred  277 
strikes,  of  which  256  were  failures,  17  were  compromised, 
and  only  4  were  successful.  The  following  table  taken 


268 


PRINCIPLES    OF   POLITICAL   ECONOMY. 


from  the  Massachusetts  Report  of  1888,  gives  on  a  broad 
scale  the  results  of  Strikes  in  the  United  States  for  six 
years : — 

GENERAL  SUMMARY  OF  STRIKES  IN  FIVE  PRINCIPAL  STATES  FOR  1881-1886. 

Percentages. 


CLASSIFICATIONS. 

Illinois. 

Massa- 
chusetts. 

New 
York. 

Ohio. 

03 

1 

6 

I 

Other 
Parts 
of  the 
United 
States. 

THE 
UNITED 

STATES. 

Strikes. 
Ordered  by  labor  organ- 
izations ... 

8396 

81  91 

94  26 

71  21 

61  59 

73  06 

82  24 

Establishments  closed,    . 

Causes: 
Against    reduction    of 

70.70 
5  35 

79.10 
6  23 

51.01 
2  50 

81.21 
20  73 

70.11 
22  65 

57.57 
8  61 

60.13 

7  77 

For  change  of  hour  of 
beginning  work,     .     . 
For  increase  of  wages, 
For  increase  of  wages 
and  reduction  of  hours, 
For  reduction  of  hours, 
For  reduction  of  hours 
and  against  being  com- 
pelled  to  board  with 

41.54 

17.85 
18.35 

35.28 

0.50 
42.71 

3.86 
39.09 

9.37 
24.31 

7  32 

52.42 

1.85 
5.32 

46.97 

1.06 
5.32 

0.05 
45.01 

4.96 
17.23 

2  19 

1.61 
42.32 

7.59 
19.48 

3  59 

Other  causes,  .... 

Results  : 
Succeeded,  
Succeeded  partly,    .    . 
Failed  

16.91 

54.16 
10.33 
35.51 

15.28 

35.28 
45.93 
18.79 

13.55 

*51.05 
*8.14 
*40.65 

19.68 

49.44 
8.87 
41.69 

24.00 

32.60 
17.57 
49.83 

21.95 

42.69 
17.27 
40.04 

17.64 

*46.52 
*13.47 
*39.95 

*  In  15  establishments  the  results  were  not  ascertained. 

3.  The  third  popular  remedy  for  low  Wages,  which  has 
at  least  the  merit  of  being  in  the  line  of  economical  con- 
siderations, as  the  other  two  are  not,  is  "  Co-operation." 
The  interest  in  this  proposed  remedy  is  much  less  both  in 
Europe  and  in  the  United  States  than  formerly,  owing  to 
the  failures  that  have  mostly  attended  the  attempts  to  put 
the  scheme  into  practice,  although  there  have  been  some  re- 
markable successes  also,  particularly  in  England.  The  idea 
of  Co-operation  is  this,  namely,  that  certain  laborers  within 
given  classes  combine  of  their  own  accord,  (1)  either  to  pur- 


PERSONAL  SERVICES.  269 

chase  their  necessaries  in  common  and  at  wholesale,  hence  at 
cheaper  rates  because  avoiding  all  profits  of  the  middlemen; 
or  (2),  more  especially  to  engage  in  the  joint  production  of  the 
commodities  they  are  familiar  with,  the  laborers  furnishing 
the  capital  also  from  their  little  hoards  or  borrowing  it  on  the 
strength  of  their  individual  or  associated  credit,  managing  the 
business  themselves,  all  being  co-partners,  and  of  course  all 
sharing  pro  rata  the  entire  profits  of  the  concern. 

All  this  is  well ;  and  in  countries  where  laborers  have 
been  under  traditional  disabilities,  it  may  be  in  some  cases 
very  promotive  of  their  self-respect,  activity,  frugality,  and 
general  welfare  ;  but  any  one  can  see  that  no  new  economic 
principle  is  involved  in  the  plan.  As  in  all  other  produc- 
tion, so  here,  there  must  be  (1)  capital  from  some  source, 
(2)  steady  and  skilful  labor,  and  (3)  superintendence  or 
management  of  the  business.  It  is  at  the  third  point  that 
schemes  of  co-operation  have  mostly  broken  down.  The 
faculty  of  good  management  is  rare ;  the  organizing  and 
executive  ability  needful  to  carry  through  any  scheme  of 
co-operation  will  not  come  upon  call ;  if  any  of  the  co-oper- 
ators chance  to  possess  it,  the  scheme  may  succeed,  al- 
though he  who  is  conscious  of  having  it  will  prefer  to  use 
it  for  his  own  gain  in  his  own  way,  to  say  nothing  of  the 
practical  impossibility  of  any  man's  working  with  the  same 
spirit  when  the  gain  or  loss  is  to  be  largely  another's  as 
when  it  is  to  be  wholly  his  own;  moreover,  it  has  been 
well  said,  "it  is  impossible  to  hire  commercial  genius  or 
the  instincts  of  a  skilful  trader  " ;  so  that,  while  there  is 
no  trouble  about  the  workmen  uniting  the  character  of 
capitalist  and  laborer  in  their  own  persons,  and  no  doubt 
that  they  will  work  harder  and  more  skilfully  while  shar- 
ing profits  as  well  as  receiving  wages,  it  is  still  true,  that 
the  difficulty  of  securing  a  real  "  captain  of  industry,"  and 
thus  a  perfect  organization  and  management  of  the  whole 


270  PBINCIPLES   OF   POLITICAL  ECONOMY. 

business,  puts  the  scheme  of  co-operation  out  of  the  ques- 
tion as  a  means  of  raising  wages,  or  promoting  the  general 
welfare  of  laborers. 

In  this  country,  where  there  is  nothing  to  hinder  any 
laborer  from  becoming  a  capitalist,  where  the  savings-banks 
are  open  to  the  smallest  gains,  where  nothing  is  more 
common  than  for  two  or  more  workmen  to  organize  a  firm 
to  carry  on  some  branch  of  business,  where  most  of  the 
present  capitalists  proper  were  formerly  laborers  proper, 
and  where  the  shares  of  most  of  the  joint-stock  companies 
are  open  to  everybody  who  has  the  means  to  buy  them, 
there  is  only  one  consideration  that  seems  to  justify  any 
special  jealousy  of  laborers  as  such  towards  capitalists  as 
such ;  and  that  is  the  fact,  that  Legislation,  every  now  and 
then,  sometimes  on  a  small  scale  and  then  on  a  gigantic 
one,  now  by  means  of  corporate  charters  and  then  by 
other  means  more  indirect  and  effective,  does  confer  certain 
extraordinary  privileges  upon  capitalists.  So  long  as  cap- 
italists and  laborers  rest  upon  their  natural  rights  and 
positions,  neither  can  get  any  undue  advantage  of  the 
other ;  and  just  so  far  as  each  recognizes  their  identity  of 
economic  interest  and  the  consequent  reciprocity  of  obli- 
gation and  effort,  the  prosperity  of  each  will  help  build 
up  the  other;  but,  on  the  other  hand,  so  far  forth  as  any 
advantages  are  given  to  capitalists  by  special  laws,  either 
of  State  or  Nation,  these  become  necessarily  unjust  to 
laborers,  and  ultimately  also  injurious  to  capitalists;  and 
in  this  case,  the  laborers,  seeing  just  what  it  is  that  hurts 
them,  ought  to  combine  together  and  to  strike,  not  capital 
(their  lest  friend),  but  a  piece  of  perverted  legislation  (their 
worst  enemy). 


COMMERCIAL   CREDITS.  271 


CHAPTER  IV. 

COMMERCIAL  CREDITS. 

POLITICAL  ECONOMY  is  the  Science  of  Sales ;  and  because 
it  is  the  science  of  sales,  its  definitions  and  principles  must 
cover  equally  all  cases  of  sales  actually  occurring  or  pos- 
sible to  occur.  We  have  seen  repeatedly,  that  only  three 
kinds  of  things  are  ever  bought  and  sold,  or  ever  will  be, 
and  these  are  Commodities  and  Services  and  Claims.  The 
first  two  kinds  have  been  fully  elucidated  already  in  the 
two  preceding  chapters,  and  it  belongs  to  the  present 
chapter  to  explain  and  illustrate  clearly  the  peculiarities  of 
the  third  kind  of  things  salable.  Ours  is  the  only  science 
that  has  to  do  with  the  motives  and  facts  and  economic 
results  of  all  sales  as  such. 

The  discussions  of  the  present  chapter  will  proceed 
orderly  through  the  following  topics :  — 

The  Nature  of  Credit. 
The  Forms  of  Credit. 
The  Advantages  of  Credit. 
The  Disadvantages  of  Credit. 

1.  Certain  things  are  essential  in  every  sale  of  anything, 
and  of  course  are  common  to  all  sales  of  everything,  such 
as  two  persons  and  two  desires  and  two  estimates  and  two 
renderings  ;  while  there  are  certain  peculiarities  in  the  sale 
of  things  belonging  to  each  of  the  three  special  classes  of 
things  salable;  for  example,  in  the  sale  of  a  commodity 
there  is  a  rendering  of  a  tangible  object  that  has  been 


272  PRINCIPLES   OF   POLITICAL  ECONOMY. 

prepared  for  sale  in  past  time,  and  in  the  sale  of  a  service  a 
rendering  of  an  intangible  something  wholly  in  the  present 
time ;  while  in  the  sale  of  a  credit  there  are  likewise  two 
peculiarities,  one  of  them  relating  to  future  time  and  the 
other  to  a  special  trust  felt  in  a  person  by  some  other 
person.  We  must  now  study  these  two  peculiarities  with 
care;  and,  mastering  these,  we  shall  be  master  of  the 
Nature  of  Credit. 

a.  Some  sales  are  consummated  at  once,  the  things  ex- 
changed and  the  ownership  in  them  are  mutually  passed 
over  then  and  there,  the  reciprocal  satisfactions  are  entered 
upon  immediately,  and  there  is  at  once  an  economical  end. 

For  example,  one  neighbor  sells  another  a  peck  of  green 
peas  and  takes  in  pay  a  peck  of  new  potatoes,  both  vege- 
tables may  be  cooked  for  dinner  in  the  respective  families 
the  same  day,  and  the  commercial  transaction  is  all  over. 
But  there  are  other  exchanges,  an  immense  class  of  them, 
different  from  these  in  this  respect,  that  though  the  trans- 
action considered  as  a  mere  case  of  value  created  and 
measured  is  then  and  there  ended,  yet  considered  as  to  the 
nature  of  that  preliminary  exchange  which  implies  and 
requires  another  future  exchange  to  consummate  it,  it  is 
not  then  and  there  ultimately  closed,  but  one  (or  both)  of 
the  parties  then  exchanging  relies  on  the  good  faith  of 
some  one  else  to  fulfil  in  the  future  a  pledge  expressly 
or  impliedly  made  in  the  prior  exchange.  Commonly  some 
external  evidence  of  the  pledge  is  created  and  passed  at 
the  time,  but  this  is  not  essential  to  the  validity  of  the 
pledge  itself.  For  example,  A  buys  50  bushels  of  wheat  of 
B,  and  B  takes  in  pay  for  it  A's  note  of  hand  at  six  months 
for  |75.  The  note  is  not  the  pledge,  but  it  is  a  legal  and 
convenient  proof  of  it.  As  a  case  in  Value,  the  wheat  is 
sold  for  the  pledge  and  the  pledge  is  the  equivalent  of  the 
wheat.  Each  party  rendered  the  other  then  and  there 


COMMERCIAL   CREDITS.  273 

satisfactory  equivalents.  All  our  definitions  apply  here 
perfectly. 

Still  a  further  and  future  exchange  was  contemplated 
by  both  parties  at  the  time  of  making  this  exchange,  and 
as  a  silent  part  of  it.  A  takes  what  is  now  his  own  wheat, 
and  B  takes  as  an  equivalent  for  what  was  his  wheat  a 
right  to  demand  of  A  in  six  months  an  equivalent  for  the 
present  equivalent  (the  pledge)  for  the  sake  of  which  B 
rendered  the  wheat.  The  note  of  hand  is  the  evidence  of 
this  pledge,  and  it  belongs  absolutely  to  B.  It  is  his  prop- 
erty. He  may  keep  it  till  maturity  and  then  sell  it  to  A 
for  its  face,  or  he  may  sell  it  at  once  to  a  bank  for  its  face 
less  the  discount  for  six  months.  Discount  is  the  differ- 
ence between  the  face  and  the  present  price  of  a  note  of 
hand.  The  first  peculiarity,  then,  of  Credit  is,  that  it 
always  involves  the  element  of  future  time.  But  it  in- 
volves this  secondarily,  and  not  primarily.  In  other 
words,  a  present  equivalent  is  always  rendered  by  both 
parties  in  every  commercial  transaction  ;  but  the  present 
equivalent  in  the  case  of  a  credit  transaction  is  the  right 
to  demand  something  of  somebody  sometime  in  the  future. 
This  distinction  is  very  important,  as  we  shall  see  clearly 
when  we  come  to  treat  of  Banking,  though  it  is  generally 
ill-understood  at  present.  Valuables,  when  they  exchange 
at  all,  exchange  once  for  all.  But  there  is  one  kind  of  val- 
uables, namely,  claims,  which,  when  subject  to  exchange, 
imply  and  require  another  and  a  future  exchange,  not 
necessarily  between  the  parties  to  the  first  exchange,  but 
between  some  two  parties ;  and  not,  speaking  strictly,  to 
consummate  the  first  exchange,  because  that  took  and  gave 
its  own  satisfactory  equivalents;  but,  as  involving  both 
time  and  trust,  the  credit  sale  must  in  the  nature  of  things 
be  followed  by  another  sale  of  one  of  the  three  kinds. 

We  see,  accordingly,  that  in  Credit  our  science  of  Eco- 


274  PRINCIPLES   OF  POLITICAL  ECONOMY. 

nomics  takes  partial  possession  of  future  time  for  certain 
purposes  of  its  own.  Exchange  sets  its  throne  and  reigns 
pre-eminently  in  present  time ;  but  its  sceptre  extends  also 
over  past  time,  so  far  as  all  capital  is  concerned,  and  so  far 
as  all  material  commodities  (the  result  of  past  work)  are 
exposed  for  sale  in  the  present ;  and  its  right  hand  of  rule 
goes  forth  also  to  grasp  the  future,  under  limitations  indeed 
both  as  to  the  stretch  of  time  covered  and  as  to  the  char- 
acter of  the  persons  concerned,  but  still  there  is  there  a 
fair  domain  and  a  broad  domain,  and  a  realm  on  the  whole 
winning  a  wider  and  wider  circuit.  It  is  one  of  the  proud 
boasts  of  Political  Economy  as  a  science,  as  it  is  too  one  of 
the  exalted  traits  of  human  nature,  that  the  lordly  impulse 
to  buy  and  sell  does  not  confine  itself  to  what  the  Past 
offers  in  all  its  accumulated  valuables,  nor  to  what  the 
Present  unfolds  in  the  unlimited  desires  and  efforts  of  con- 
gregated men,  but  reaches  out  also  into  the  Future,  and 
makes  that  pay  tribute  more  and  more  into  the  vast  treas- 
ury of  its  Gains.  And  this  too  is  legitimate.  Man  is  at 
once  and  all  the  time  actor  and  historian  and  prophet. 
The  future  is  not  wholly  unknown.  Given  the  one  as- 
sumption, that  Earth  and  Men  go  on  as  heretofore,  Ex- 
change knows  well  enough,  and  better  and  better,  whom 
of  the  coming  men  to  trust  and  for  how  long  a  time.  The 
doctrine  of  averages  and  of  probabilities  comes  along  to 
guide  and  to  enhearten  the  investor.  Any  thoroughly 
established  government  of  to-day  can  borrow  all  the  money 
that  it  wants  on  its  public  pledge  to  repay  the  principal 
fifty  years  hence.  England  has  borrowed  millions  of 
pounds  sterling,  giving  no  day  certain  in  the  future  for 
its  repayment.  These  funds  are  called  "Consolidated 
Annuities  " :  the  interest  on  them  is  paid  on  a  day  nomi- 
nated in  the  bond :  the  principal  is  to  be  paid  when  the 
borrower  chooses,  or  never. 


COMMERCIAL   CREDITS.  275 

b.  The  other  and  final  peculiarity  of  Credit  is,  that  it 
always  involves  on  the  part  of  one  person  a  commercial 
confidence  in  some  person  as  such.  The  term,  Credit,  is 
derived  from  the  Latin  CREDO,  /  believe,  and  the  corre- 
sponding term,  Debt,  from  DEBEO,  I  owe.  Thus  the  per- 
sonal element  and  the  future  element  are  wrapt  up  in  the 
very  origin  of  the  words.  There  is  no  credit  without  debt, 
and  no  debt  without  credit.  The  very  words  imply  a  belief 
of  one  of  the  two  parties  in  a  commercial  promise  made 
by  the  other,  and  also  an  obligation  acknowledged  by  this 
party  as  due  to  the  first.  There  is  a  basis  for  credit  in 
human  nature.  Faith  in  each  other  to  a  certain  extent  is 
natural  to  men.  Whatever  enlarges  the  intellectual  fore- 
sight, and  especially  the  moral  character  of  men,  opens  a 
broader  and  surer  field  for  Credits.  Civilization,  so-called, 
and  Christianity  certainly,  deepens  and  broadens  the  natu- 
ral trust  of  man  in  man.  Despite  all  the  instances  of 
broken  faith,  and  they  are  too  many ;  despite  the  shocks 
and  cautions  that  come  every  now  and  then  to  every  man 
who  trusts  much  in  his  fellow-men ;  experience  itself  justi- 
fies and  rewards  an  ever-growing  commercial  trust.  It  is 
one  of  the  noble  things  in  international  commerce,  as  we 
shall  see,  that  men  trust  each  other  across  the  oceans,  and 
lay  millions  of  value  upon  the  faith  of  a  single  firm.  As 
the  core  of  the  Christian  religion  is  confidence  in  a  Person, 
so  the  very  substance  of  credits  is  a  natural  and  in  general 
well-grounded  faith  in  persons  as  such. 

A  Credit,  then,  may  be  defined  to  be  a  Right  to  demand 
something  of  somebody  ;  and  a  Debt  to  be  an  Obligation  to 
pay  something  to  somebody.  What  always  lies,  accordingly, 
between  creditors  and  debtors,  are  Rights  coupled  with 
Obligations ;  and  these  are  Property,  just  as  much  as  any- 
thing is  and  for  the  same  reason,  since  they  always  may 
be,  and  usually  are,  bought  and  sold  by  other  parties  as 


276  PRINCIPLES   OF   POLITICAL   ECONOMY. 

well  as  the  original  parties.  In  these  Rights  or  Claims, 
therefore,  arises  a  commerce,  domestic  and  foreign,  immense 
in  extent  and  amount,  and  the  Rights  themselves  take  their 
undisputed  place  on  an  equality  with  tangible  Commodi- 
ties and  personal  Services. 

Having  thus  reached  an  ultimate  and  satisfactory  defini- 
tion of  Credit,  we  must  still  pursue  a  little  further  our 
present  object,  namely,  to  obtain  a  clear  conception  of  the 
nature  of  this  great  class  of  Valuables,  by  drawing  two  or 
three  distinctions  between  Credit-Rights  and  some  other 
rights  very  apt  to  be  confounded  with  them. 

(1)  The  distinction  between  credit-rights  and  other 
rights  is  well  rooted  in  the  Latin  language  and  in  the 
Roman  law,  while  the  corresponding  English  terms  are 
quite  ambiguous  and  need  to  be  used  with  great  caution. 
In  Latin,  a  true  debt  is  called  a  Mutuum,  because  it  lies 
between  two  persons,  a  creditor,  and  a  debtor,  and  is  a 
credit-right  independent  of  the  question  of  fact  whether 
the  debtor  has  now  the  thing  rendered  to  him  or  not, 
indeed  whether  he  has  anything  at  all  to  pay  with  or  not ; 
on  the  other  hand,  a  thing  merely  lent,  when  the  very 
thing  lent  is  to  be  returned  to  its  owner,  who  has  not  in 
the  meantime  parted  with  his  property  to  the  other,  is 
called  in  Latin  a  Commodatum.  The  English  tongue  has 
but  the  one  word,  Loan,  for  the  two  very  distinct  opera- 
tions :  for  the  loan  of  a  book,  for  instance,  which  is  to  be 
returned  after  use,  and  which  may  be  legally  reclaimed 
by  the  owner  if  he  chance  to  find  it  anywhere,  that  is, 
the  Latin  commodatum ;  and  for  the  loan  of  money,  or 
other  such  measurable  thing,  which  is  to  be  returned  in 
kind  only,  and  which  may  not  legally  be  reclaimed  except 
through  some  action  of  the  borrower,  since  the  ownership 
of  that  thing  rendered  has  passed  over  to  him  completely, 
that  is,  the  Latin  mutuum.  The  same  ambiguity  of  course 


COMMERCIAL  CREDITS.  277 

inheres  in  the  corresponding  English  word,  Borrow.  The 
English  language  is  relatively  poor  in  words  expressing 
nice  legal  distinctions. 

Now,  as  a  true  debt  is  a  claim  on  a  person  and  never  on 
a  thing i  the  Roman  Law  is  true  to  the  nature  of  things 
and  to  the  vital  distinctions  of  our  science,  when  it  names 
the  right  to  which  a  mutuum  gives  birth  as  a  jus  in  per- 
sonam,  that  is  to  say,  a  right  against  the  person ;  while  it 
names  the  legal  obligation  arising  out  of  a  commodatum  as 
a  jus  in  re,  that  is  to  say,  a  right  to  the  very  thing.  So 
strongly  is  this  doctrine,  namely,  that  the  security  of  a 
true  debt  lies  against  persons  and  not  against  things,  in- 
trenched in  the  Roman  Law,  that  debts  or  credits  are 
even  termed  "nomina"  names,  in  that  law,  as  when 
Ulpian  says,  "  Nomina  eorum  qui  sub  conditione  vel  in 
diem  debent  et  emere  et  vendere  solemus  "  :  We  are  accus- 
tomed to  buy  and  sell  DEBTS  payable  on  a  certain  day  and 
at  a  certain  event.  The  fundamental  law  of  the  present 
national  banks  of  the  United  States  explicitly  recognizes 
this  old  and  good  distinction  by  requiring  the  banks  to 
loan  money  on  personal  security  only,  that  is  to  say,  no 
tangible  things,  not  even  real  estate,  may  be  taken  as 
original  security  for  any  loan. 

(2)  Henry  Dunning  Macleod,  who  has  cast  fresh  light 
on  the  nature  of  Credit,  draws  another  distinction  that 
lies  on  the  threshold  of  the  subject,  namely,  that  between 
paper  documents  conveying  titles  to  specific  things,  such 
as  a  bill  of  lading,  for  example,  and  those  conveying  credit- 
rights,  such  as  a  bank-note,  for  example.  Bills  of  lading 
describe  the  goods,  go  out  with  the  goods,  are  a  title  to 
the  goods,  and  have  no  value  separate  from  the  goods ;  bank- 
notes have  nothing  to  do  with  any  specific  pieces  of  prop- 
erty anywhere,  are  in  no  proper  sense  a  title  to  anything 
whatever,  but  a  general  claim  for  something  upon  some 


278  PRINCIPLES   OF   POLITICAL   ECONOMY. 

person  somewhere  that  awaits  his  action  for  its  validity 
and  realization.  For  instance,  a  grain-dealer  in  Chicago  sells 
1,000  bushels  of  No.  2  wheat  to  a  party  in  New  York,  and 
ships  the  grain  to  that  point  by  rail :  two  kinds  of  paper 
documents  arise  in  connection  with  this  transaction,  which 
are  quite  diverse  in  their  nature  and  course  of  operation : 
one  is  a  bill  of  lading,  that  goes  along  with  the  wheat,  and 
gives  the  person  named  in  the  bill  a  complete  title  to 
1,000  bushels  of  wheat  of  a  certain  description,  and  the 
holder  of  the  bill  takes  the  wheat  and  asks  no  favors  of 
anybody  ;  and  the  other  is  a  bill  of  exchange,  drawn  by  the 
grain-dealer  in  Chicago  on  the  consignee  of  the  wheat  in 
New  York,  which  bill  of  exchange  is  sold  at  once  by  the 
creditor  in  Chicago  to  a  banker  there,  provided  the  banker 
has  commercial  confidence  in  the  two  names  on  the  bill 
and  a  sufficient  motive  in  the  shape  of  a  discount  for  buy- 
ing it :  thus  the  bill  of  lading  has  in  it  neither  element 
of  Credit,  neither  Time  nor  Trust,  while  the  bill  of  ex- 
change has  both  of  these  elements  in  it. 

(3)  Attention  should  be  called  to  a  third  distinction  of 
the  same  general  nature,  as  between  relations  very  differ- 
ent in  themselves  and  yet  extremely  liable  to  be  con- 
founded with  each  other.  Let  us  take  a  common  instance : 
a  customer  of  a  bank  takes  a  package  of  valuables  of  any 
kind  to  his  banker,  such  as  bonds  and  bills  payable  and 
jewels  and  plate,  and  asks  him  to  take  care  of  it  for  the 
present  in  his  vault,  subject  of  course  to  a  return  to  him  or 
any  one  else  to  his  order  at  any  time :  no  property  in  these 
valuables  passes  over  to  the  banker,  it  is  not  a  deposit  in 
the  ordinary  banking  sense,  the  relation  of  debtor  and  cred- 
itor does  not  arise  as  between  banker  and  depositor,  the 
banker  becomes  Trustee  or  Bailee  of  the  package,  and  is 
bound  to  exercise  common  vigilance  in  the  care  of  it,  but 
if  it  be  burned  or  stolen  extraordinarily  the  loss  is  the  cus- 


COMMERCIAL   CREDITS.  279 

tomer's  and  not  the  banker's.  But  now,  on  the  other  hand, 
when  a  customer  deposits  in  the  banking  sense  money  or 
bills  payable  with  his  banker,  the  property  in  the  money 
and  bills  passes  over  to  the  banker  instantly,  the  relation 
of  debtor  and  creditor  arises,  the  depositor  receives  a  credit 
on  the  banker's  books  in  return  for  the  money  and  bills 
rendered,  the  exchange  as  a  mere  case  of  value  is  consum- 
mated to  the  profit  of  both  parties,  but  the  return-service 
to  the  depositor  is  the  right  to  demand  equivalents  of  the 
banker  at  some  future  time.  In  other  words,  it  is  a  case  in 
Credit. 

(4)  As  this  general  distinction  is  vital,  we  shall  lose 
nothing  in  the  end  if  we  make  even  a  fourth  exemplifica- 
tion of  it.  The  United  States  Treasury  receives  silver 
dollars  of  its  own  minting  from  any  person  who  chooses  to 
place  them  there,  and  gives  out  in  token  what  are  called 
"  Silver  certificates "  to  the  same  amount,  entitling  the 
bearer  to  take  out  the  dollars  again  at  will,  and  thus  the 
certificates  being  more  convenient  than  the  dollars  and 
just  as  valuable  become  a  part  of  the  money  of  the  country. 
The  Treasury  is  bound  to  exercise  due  care  in  the  keeping 
of  these  silver  coins,  and  to  return  them  to  the  holders  of 
certificates  on  demand,  just  as  the  elevator  and  railroad 
companies  are  under  legal  obligations  to  show  diligence  in 
keeping  and  transporting  the  wheat  of  our  former  example  ; 
but  the  United  States  is  not  debtor  to  the  holders  of  these 
certificates  any  more  than  the  elevator  company  is  debtor 
to  the  wheat  shipper,  and  consequently  there  is  no  element 
of  Credit  in  these  certificates.  Just  so  of  the  later  gold 
certificate.  On  the  other  hand,  the  so-called  greenbacks 
issued  by  the  United  States  are  also  a  part  of  the  money 
of  the  country,  but  they  are  credit-money,  inasmuch  as 
they  are  a  promise  to  pay  to  the  bearer  some  time  in  the 
future  so  many  dollars.  The  Treasury  has  never  kept  up 


280  PRINCIPLES  OF  POLITICAL  ECONOMY. 

any  special  fund  of  gold  and  silver,  with  which  to  redeem 
the  greenbacks.  They  rest  back  for  their  value  on  the 
good  faith  of  the  country.  The  United  States  is  debtor  to 
the  bearers,  and  these  in  turn  are  creditors,  and  the  legal- 
tender  quality  of  the.  greenbacks  does  not  alter  their  char- 
acter as  a  form  of  pure  credit.  Both  the  elements  of  good 
faith  and  future  time  inhere  in  the  greenbacks,  as  they  do 
also  in  the  bonds  of  the  United  States,  while  in  the  certifi- 
cates neither  of  these  elements  appears. 

However,  circumstances  easily  conceivable  and  which 
were  actually  realized  in  the  case  of  the  famous  Bank  of 
Amsterdam,  founded  in  1609,  might  make  the  United 
States  a  debtor  and  the  holders  of  the  silver  certificates 
creditors  in  the  commercial  sense  of  those  terms.  The 
Directors  of  the  Bank  of  Amsterdam,  towards  the  close  of 
the  second  century  of  its  beneficent  existence,  loaned  out 
to  the  Dutch  East  India  Company  and  to  the  City  of 
Amsterdam  large  parts  of  the  bullion,  on  which  its  certifi- 
cates ("bank  money  ")  were  based,  unknown  to  the  public, 
which  felt  unlimited  confidence  in  the  bank,  and  the  result 
was  in  1795,  when  the  French  invaded  Holland  and  the 
facts  became  known,  that  bank  money  which  had  previ- 
ously borne  a  premium  of  5%  fell  at  once  to  a  discount  of 
16%,  although  the  bullion  that  remained  and  the  debts 
due  the  Bank  were  fully  equal  to  redeem  the  certificates 
and  were  used  for  that  purpose.  So,  if  the  United  States 
should  use,  clandestinely  or  otherwise,  the  silver  dollars  for 
other  purposes  than  to  redeem  the  certificates  on  demand, 
the  latter  would  undoubtedly  both  in  law  and  fact  be  trans- 
formed from  mere  token-money  (as  now)  into  credit-money 
valid  as  against  the  United  States  as  debtor,  like  the  green- 
backs at  present. 

Have  we  now  compassed  our  first  object?  Do  we  fully 
understand,  from  the  foregoing  descriptions  and  distinc- 


COMMERCIAL   CK  EDITS.  281 

tions,  the  Nature  of  Credit  ?  If  so,  we  are  prepared  to  look 
narrowly  into  its  Forms. 

2.  Credit-rights  are  commonly,  but  not  always,  recorded 
upon  paper ;  but  it  is  important  to  observe,  that  the  paper- 
document  is  the  mere  evidence  of  the  right,  and  not  the 
right  itself,  which  lies  back  of  the  paper  as  substance  to 
shadow,  and  persists  intact  even  were  the  paper  lost  or 
destroyed.  These  paper  instruments  of  Credit  are  com- 
monly contemplated  as  of  two  kinds,  Promises  to  pay  and 
Orders  to  pay,  but  there  is  not  at  bottom  any  radical  differ- 
ence between  these,  the  Right  as  between  two  persons  is 
not  affected  by  this  superficial  difference,  as  we  shall  see, 
and  the  present  enumeration  of  credit-forms  will  proceed 
independently  of  it. 

a.  Book  Accounts.  A  charge  in  a  trader's  books  is  both 
a  current  and  a  legal  evidence  that  the  person  charged  has 
received  a  certain  service,  and  has  virtually  promised  to 
render  the  sum  charged  as  a  return-service.  Book  accounts 
are  the  most  common  of  the  forms  of  credit;  and  if  the 
person  charged  fails  of  his  own  accord  to  complete  the 
exchange  thus  commenced,  the  law,  in  the  absence  of  any 
proof  to  make  the  charge  suspicious,  collects  it,  if  possible, 
and  forcibly  completes  the  exchange.  The  convenience  of 
this  form  of  credit  is  so  great,  that  it  is  not  likely  ever  to  be 
disused ;  and  as  between  people  who  deal  much  with  each 
other  is  very  useful,  inasmuch  as  their  respective  book 
accounts  are  set  against  each  other  in  settlement,  and  only 
balances  are  required  to  be  cancelled  in  money.  It  is  for 
the  benefit  of  both  creditors  and  debtors,  however,  even 
when  the  same  parties  are  both  creditor  and  debtor,  that 
such  credits  should  be  short  in  time  and  such  settlements 
frequent,  since  in  book  accounts  there  is  no  interest  on 
charges  however  long  they  run,  and  since  in  this  way  only 
can  the  creditor  realize  the  full  gain  of  the  exchange,  and 


280  PRINCIPLES   OF  POLITICAL  ECONOMY. 

any  special  fund  of  gold  and  silver,  with  which  to  redeem 
the  greenbacks.  They  rest  back  for  their  value  on  the 
good  faith  of  the  country.  The  United  States  is  debtor  to 
the  bearers,  and  these  in  turn  are  creditors,  and  the  legal- 
tender  quality  of  the  greenbacks  does  not  alter  their  char- 
acter as  a  form  of  pure  credit.  Both  the  elements  of  good 
faith  and  future  time  inhere  in  the  greenbacks,  as  they  do 
also  in  the  bonds  of  the  United  States,  while  in  the  certifi- 
cates neither  of  these  elements  appears. 

However,  circumstances  easily  conceivable  and  which 
were  actually  realized  in  the  case  of  the  famous  Bank  of 
Amsterdam,  founded  in  1609,  might  make  the  United 
States  a  debtor  and  the  holders  of  the  silver  certificates 
creditors  in  the  commercial  sense  of  those  terms.  The 
Directors  of  the  Bank  of  Amsterdam,  towards  the  close  of 
the  second  century  of  its  beneficent  existence,  loaned  out 
to  the  Dutch  East  India  Company  and  to  the  City  of 
Amsterdam  large  parts  of  the  bullion,  on  which  its  certifi- 
cates ("bank  money  ")  were  based,  unknown  to  the  public, 
which  felt  unlimited  confidence  in  the  bank,  and  the  result 
was  in  1795,  when  the  French  invaded  Holland  and  the 
facts  became  known,  that  bank  money  which  had  previ- 
ously borne  a  premium  of  5%  fell  at  once  to  a  discount  of 
16%,  although  the  bullion  that  remained  and  the  debts 
due  the  Bank  were  fully  equal  to  redeem  the  certificates 
and  were  used  for  that  purpose.  So,  if  the  United  States 
should  use,  clandestinely  or  otherwise,  the  silver  dollars  for 
other  purposes  than  to  redeem  the  certificates  on  demand, 
the  latter  would  undoubtedly  both  in  law  and  fact  be  trans- 
formed from  mere  token-money  (as  now)  into  credit-money 
valid  as  against  the  United  States  as  debtor,  like  the  green- 
backs at  present. 

Have  we  now  compassed  our  first  object?  Do  we  fully 
understand,  from  the  foregoing  descriptions  and  distinc- 


COMMERCIAL   CREDITS.  281 

tions,  the  Nature  of  Credit  ?  If  so,  we  are  prepared  to  look 
narrowly  into  its  Forms. 

2.  Credit-rights  are  commonly,  but  not  always,  recorded 
upon  paper ;  but  it  is  important  to  observe,  that  the  paper- 
document  is  the  mere  evidence  of  the  right,  and  not  the 
right  itself,  which  lies  back  of  the  paper  as  substance  to 
shadow,  and  persists  intact  even  were  the  paper  lost  or 
destroyed.  These  paper  instruments  of  Credit  are  com- 
monly contemplated  as  of  two  kinds,  Promises  to  pay  and 
Orders  to  pay,  but  there  is  not  at  bottom  any  radical  differ- 
ence between  these,  the  Right  as  between  two  persons  is 
not  affected  by  this  superficial  difference,  as  we  shall  see, 
and  the  present  enumeration  of  credit-forms  will  proceed 
independently  of  it. 

a.  Book  Accounts.  A  charge  in  a  trader's  books  is  both 
a  current  and  a  legal  evidence  that  the  person  charged  has 
received  a  certain  service,  and  has  virtually  promised  to 
render  the  sum  charged  as  a  return-service.  Book  accounts 
are  the  most  common  of  the  forms  of  credit;  and  if  the 
person  charged  fails  of  his  own  accord  to  complete  the 
exchange  thus  commenced,  the  law,  in  the  absence  of  any 
proof  to  make  the  charge  suspicious,  collects  it,  if  possible, 
and  forcibly  completes  the  exchange.  The  convenience  of 
this  form  of  credit  is  so  great,  that  it  is  not  likely  ever  to  be 
disused ;  and  as  between  people  who  deal  much  with  each 
other  is  very  useful,  inasmuch  as  their  respective  book 
accounts  are  set  against  each  other  in  settlement,  and  only 
balances  are  required  to  be  cancelled  in  money.  It  is  for 
the  benefit  of  both  creditors  and  debtors,  however,  even 
when  the  same  parties  are  both  creditor  and  debtor,  that 
such  credits  should  be  short  in  time  and  such  settlements 
frequent,  since  in  book  accounts  there  is  no  interest  on 
charges  however  long  they  run,  and  since  in  this  way  only 
can  the  creditor  realize  the  full  gain  of  the  exchange,  and 


282  PRINCIPLES   OF   POLITICAL   ECONOMY. 

the  debtor  keep  fair  his  mercantile  name.  If  it  be  difficult 
or  impossible  to  follow  strictly  the  excellent  financial 
maxim,  "  Pay  as  you  go,"  the  next  best  thing  to  that  is, 
"  Go  and  pay."  The  gains  of  an  exchange  are  lessened, 
or  its  terms  become  more  onerous,  just  in  proportion  as 
delay  in  its  completion  is  experienced  or  expected.  Book 
accounts  are  subject  also  to  this  disadvantage  as  compared 
with  other  forms  of  credit,  that  their  number  and  amount 
as  against  any  person  are  less  likely  to  become  publicly 
known,  and  therefore  he  is  more  likely  to  be  trusted  in 
this  form  by  others  beyond  the  point  of  his  solvency  and 
their  safety. 

b.  Promissory  Notes.  These  differ  from  Book  accounts 
in  that  they  are  always  either  expressly  or  virtually  on 
interest,  and  are  consequently  negotiable.  They  are  issued 
by  individuals,  corporations,  and  Nations.  If  the  principal 
be  deemed  secure,  that  is,  if  there  be  a  thorough  trust  on 
the  part  of  the  holder  in  the  maker  of  the  note,  the  time 
of  the  payment  of  the  principal  becomes  a  matter  of  com- 
parative indifference,  because  the  interest  is  compensation 
for  delay,  and  is  often  the  motive  on  the  part  of  the  holder 
for  rendering  that  service  of  which  the  note  is  evidence. 
Indeed  a  long  obligation,  other  things  being  equal,  is  com- 
monly preferred  to  a  short  one,  and  bears  a  higher  price. 
When  a  note  is  sold  (negotiated)  by  the  original  holder 
it  becomes  payable  to  the  purchaser,  or  to  each  subsequent 
purchaser  in  turn,  and  thus  may  run  a  devious  round,  may 
play  a  part  in  many  commercial  transactions,  may  be  set 
off  by  the  transient  holder  against  a  debt  owed  by  him  and 
thus  cancel  that,  and  when  itself  is  cancelled  by  ultimate 
set-off  or  by  any  other  mode  of  payment  the  last  holder 
takes  the  return  for  the  service  originally  rendered  by 
the  first  holder.  The  promissory  notes  of  individuals  are 
frequently  discounted  by  Banks  in  a  manner  to  be  presently 


COMMERCIAL   CREDITS.  288 

explained.  These  are  always  for  short  times,  and  are  debts 
bought  by  banks  on  the  personal  security  of  the  names 
upon  the  notes.  The  notes  are  founded  on  the  relation 
of  debtor  and  creditor,  which  is  always  a  personal  relation, 
and  so  differ  in  their  nature  from  a  mortgage,  which  is  a 
qualified  title  to  a  specific  piece  of  property,  usually  real 
estate.  A  note  secured  by  a  mortgage  is,  as  it  were, 
absorbed  into  the  mortgage,  and  becomes  another  thing 
from  a  common  promissory  note,  or  commercial  paper,  as  it 
is  called.  A  mortgage  rests  therefore  on  other  grounds 
than  a  commercial  trust  in  the  good  faith  of  a  person. 

Corporations  also  issue  promissory  notes,  and  as  such 
issuers  become  in  a  sense  moral  persons  entitled  to  con- 
fidence according  to  the  character  and  purposes  of  the 
individual  corporators  and  the  financial  means  and  methods 
of  the  corporation  itself.  It  is  an  old  saying,  that  "  corpo- 
rations have  no  souls  " ;  economists  as  such  have  no  need 
to  pronounce  on  that  proposition ;  the  fact  is  enough  for 
them,  that  the  short  notes  of  corporations  are  often  dis- 
counted by  bankers  on  the  same  ground  as  the  notes  of 
individuals  are  discounted ;  and  that  their  long-time  obliga- 
tions, commonly  called  Bonds,  are  all  the  time  bought  and 
sold  in  the  market  like  commodities.  Many  of  the  Rail- 
road bonds,  of  which  immense  quantities  are  in  the  markets 
of  the  world,  rest  back  also  for  their  security  upon  Mort- 
gages of  the  real  estate  of  the  corporations  made  over  to 
Trustees  to  hold  for  the  assurance  of  the  holders  of  the 
bonds.  The  personal  obligation  of  the  corporators  is  thus  re- 
inforced, much  as  a  common  mortgage  reinforces  the  note 
or  bond,  to  secure  which  the  mortgage  is  executed.  When- 
ever all  the  real  estate  of  a  railroad  company  becomes  sub- 
ject to  a  mortgage,  when  there  are  previous  partial  mort- 
gages or  liens,  these  latter  take  precedence  in  due  order  of 
any  subsequent  pledges  or  bonds  secured  by  what  is  prop- 


284  PRINCIPLES   OF   POLITICAL  ECONOMY. 

erly  called  the  consolidated  mortgage.  Such  a  mortgage  has 
recently  been  executed  by  the  Northern  Pacific  Railroad 
Company  for  $160,000,000.  Railroad  Bonds  so  fortified  in 
proper  and  legal  terms  possess  the  highest  possible  credit- 
security  to  their  holders.  When  no  such  consolidated  or 
"blanket"  mortgage  has  been  put  on  the  property,  first 
and  second  and  third  mortgages  sometimes  support  bonds  of 
primary  and  secondary  and  tertiary  validity ;  and  sometimes 
so-called  Income-bonds  are  issued,  with  or  without  mortgages 
behind  them,  for  the  payment  of  the  interest  on  which  bonds 
the  net  earnings  of  the  corporations  are  specifically  pledged. 
Frequently  also  simple  long-time  bonds  resting  on  corpora- 
tion security  only  are  negotiated  without  difficulty. 

It  must  be  constantly  borne  in  mind,  that  certificates  of 
Stock  in  railroad  and  all  other  similar  corporations  are 
not  credit-documents  at  all,  but  are  mere  evidences  of  so 
much  proportional  ownership  in  the  corporate  property. 
They  are  not  interest-bearing  documents  at  all,  although 
they  may  draw  interest  or  rather  dividends,  if  the  property 
be  prosperous.  They  are  somewhat  like  deeds  to  land,  in 
which  no  element  of  credit  inheres. 

Nations  too  are  moral  persons  in  the  same  loose  though 
binding  sense  as  corporations,  and  as  such  often  issue  prom- 
issory notes  on  interest,  commonly  called  in  this  country 
Bonds,  in  Great  Britain  Funds,  and  in  some  countries 
Stocks.  These  are  always  pure  credit.  Nations  give  no 
mortgages.  Yet  they  often  borrow  at  a  less  rate  of  interest 
than  the  most  solvent  individuals  or  corporations  can,  as  is 
seen  by  the  fact,  that  British  consols  carry  but  3%,  and  yet 
bear  a  premium  in  the  present  market.  The  term,  "  con- 
sols," is  a  popular  contraction  of  "  consolidated  annuities," 
the  Act  to  create  which  at  3%,  out  of  a  then  confused 
mass  of  public  debts  at  various  rates  of  interest  passed 
Parliament  in  1757.  The  maximum  of  the  British  debt 


COMMERCIAL  CREDITS.  285 

was  $4,500,000,000  in  1815,  and  has  now  decreased  to 
13,467,787,960. 

The  United  States  also  sold  its  bonds  at  3%  for  a  small 
premium  in  1882.  It  had  borrowed  of  its  own  citizens  in 
1862-65,  both  inclusive,  about  $2,500,000,000  on  its  bonds 
at  different  rates  of  interest  and  at  different  times  of  repay- 
ment:  some  of  these  bore  gold  interest  at  6%  annually, 
Government  reserving  the  right  to  pay  the  principal  in  five 
years  and  pledging  itself  to  pay  it  twenty  years  from  date, 
and  so  these  bonds  were  called  "  Five-twenties  " ;  others 
bore  gold  interest  at  5%,  becoming  payable  at  ten  and 
demandable  at  forty  years,  and  so  were  called  "Ten-for- 
ties "  ;  and  still  others  bore  greenback  interest  at  7^°¥%, 
the  principal  payable  in  greenbacks  at  three  years,  or  fund- 
able  in  gold  sixes,  at  the  option  of  the  holders,  and  these 
were  named  "  Seven-thirties."  Over  $90,000,000  of  this 
last  kind  of  bonds  were  subscribed  for  by  the  American 
people  in  the  course  of  a  single  week  in  the  spring  of  1865. 
The  whole  of  our  national  debt  issued  prior  to  1865  was 
made  payable  on  a  day  certain;  the  so-called  "consols" 
of  1865  and  1867  and  1868  were  payable  not  more  than 
forty  years  from  date  ;  while  all  the  bonds  authorized  from 
1870  to  1882  were  Consols  proper,  whose  peculiarity  is, 
that  they  never  fall  due  so  as  to  become  a  claim  for  the 
principal  against  the  Government,  but  after  a  day  fixed  or 
on  a  condition  fixed  are  payable  "  at  the  pleasure  of  the 
United  States."  * 

The  separate  States  of  our  Union,  as  sovereign  in  their 
own  sphere  quite  as  much  as  the  national  Government  is 
sovereign  in  its  sphere,  have  unlimited  power  to  contract 
debts  for  State  purposes  through  their  regularly  consti- 
tuted authorities;  and  consequently  to  issue  promissory 
notes  or  bonds  to  liquidate  such  debts.  New  York  com- 
1  John  Jay  Knox's  United  States  Notes. 


286  PRINCIPLES   OF   POLITICAL  ECONOMY. 

menced  in  this  way  in  1817  the  magnificent  enterprise  of 
the  Erie  Canal,  to  connect  the  great  Lakes  with  the  city  of 
New  York  by  an  iniand  water-way  for  commerce,  and  the 
completion  of  this  in  1825  made  the  State  the  "  Empire 
State,"  and  the  city  the  undisputed  commercial  metropolis 
of  the  Union.  In  a  similar  way  Massachusetts  undertook 
in  1862  the  completion  of  the  Hoosac  Tunnel  for  a  railway 
lengthwise  of  the  State ;  and  although  the  process  became 
unduly  expensive,  and  great  abuses  sprang  up  in  connec- 
tion with  it,  no  one  now  questions  that  the  pecuniary  and 
moral  resources  of  the  State  have  been  augmented,  on  the 
whole,  by  contracting  the  debt  and  providing  by  taxation 
for  the  liquidation  of  both  interest  and  principal.  The 
credit  of  Massachusetts,  that  is,  the  ability  to  borrow 
money  at  low  rates  of  interest,  has  been  at  times  greater 
than  that  of  the  United  States  ;  mainly  because  the  State  in 
1862  and  onwards  refused  to  avail  itself  of  a  depreciated 
national  paper-money  (greenbacks)  made  legal  tender  for 
all  debts,  with  which  to  pay  the  interest  on  its  then  exist- 
ing State  debt,  but  persisted  throughout  (alone  of  the 
States)  to  pay  that  interest  so  soon  as  due  in  gold  coin. 
On  the  other  hand,  several  of  the  States  of  the  Union  at 
different  times,  and  under  more  or  less  of  provocation  and 
justification,  have  made  a  partial  or  entire  repudiation  of 
certain  portions  of  their  public  debts,  justly  damaging  to 
their  individual  credit,  and  even  to  the  good  name  abroad 
of  the  whole  people  of  the  United  States. 

Counties  and  cities  and  towns  may  also  issue  interest- 
bearing  bonds  for  public  improvements,  which  have  a  quasi 
governmental  character,  but  only  under  conditions  and  to 
a  maximum  amount  prescribed  by  a  law  of  the  State. 

c.  Bank  Bills.  These  are  a  form  of  promissory  notes 
not  on  interest,  and  thus  differ  from  the  notes  of  ordinary 
corporations,  and  from  the  bonds  of  nations  and  states  and 


COMMERCIAL  CREDITS.  287 

municipalities;  but  the  issuing  Bank  offers,  as  a  sort  of 
compensation  for  the  privilege  of  circulating  notes  not 
on  interest,  to  convert  them  into  coin,  that  is,  to  pay  them 
instantly  on  the  demand  of  any  holder.  It  is  this  proffered 
and  immediate  convertibility  into  coin  that  enables  the 
promissory  notes  of  a  bank  to  circulate  as  money,  while 
the  notes  of  other  corporations  and  individuals  equally 
solid  and  solvent  do  not  circulate  as  money.  It  must  be 
borne  in  mind,  however,  that  this  offer  to  convert  them 
into  the  legal  and  ultimate  coin-money  does  not  essentially 
alter  the  nature  of  Bank  Bills;  they  are  a  form  of  com- 
mercial credit;  and  although  they  are  commonly  issued 
against  another  form  of  such  credit,  namely,  against  the 
interest-bearing  promissory  notes  of  individuals  and  cor- 
porations who  resort  to  the  bank  for  discount,  this  only 
complicates  the  exchange  without  changing  its  nature.  It 
is  a  common  instance  of  exchanging  one  form  of  credit  for 
another  form  which  happens  to  have  a  greater  currency 
or  validity  than  the  first,  and  for  this  superiority  of  the 
bank  credit  the  individual  credit  pays  an  interest,  in  other 
words,  is  discounted ;  and  such  exchanges  of  one  form  of 
paper  credit  for  another,  with  or  without  a  premium,  may 
go  on  indefinitely;  especially  as  credit-money  in  the  form 
of  bank  bills,  such  paper  may  serve  as  a  medium  in  many 
exchanges ;  but  ultimately,  and  before  the  entire  series  of 
transactions  is  closed,  such  bank  bills  are  to  be  redeemed  in 
coin,  or  taken  in  by  the  banker  in  payment  of  some  debt 
due  to  him,  in  both  which  cases  they  are  extinguished  as  an 
instrument  of  .Credit. 

The  Bank  of  England  keeps  out  in  circulation  on  the 
average  £ 25,000,000  in  bank  bills.  It  has  been  computed, 
that  the  average  length  of  life  of  a  Bank  of  England  bill 
between  its  issue  and  redemption  is  about  three  days ;  and 
no  bill  once  redeemed  or  received  back  over  the  counters 


288  PRINCIPLES   OF   POLITICAL   ECONOMY. 

of  the  Bank  is  ever  issued  again.  It  is  then  placed  on  file 
for  record  only.  The  joint-stock  and  private  banks  of 
England  and  Wales  circulate  on  the  average  rather  more 
than  £4,000,000  of  bank  bills  of  their  own;  and  no  bank 
bill  of  any  kind  is  legal  in  England  and  Wales  of  a  less 
denomination  than  £5.  The  ten  Scotch  banks  and  their 
branches  keep  out  in  bills  about  £5,000, 000;  six  out  of 
the  nine  Irish  banks  and  their  branches  issue  on  the 
average  not  far  from  £10,000,000  ;  but  both  the  Scotch  and 
Irish  banks  are  allowed  to  put  out  £1  bills. 

Bank  bills,  as  a  form  of  paper  credit  not  on  interest,  but 
ostensibly  redeemable  in  coin  on  demand  of  the  holder, 
have  been  issued  in  the  United  States  by  more  parties  and 
to  a  larger  extent  and  with  more  recklessness  as  to  redemp- 
tion than  in  any  other  country.  Omitting  all  reference  to 
Colonial  issues,  and  confining  the  outlook  to  the  first  cen- 
tury under  the  Constitution,  let  us  note,  that  when  the 
present  national  government  went  into  operation  in  1789, 
the  "Bank  of  North  America"  in  Philadelphia  and  the 
"  Bank  of  New  York  "  in  New  York  and  the  "  Bank  of 
Massachusetts  "  in  Boston  had  been  opened  for  business, 
and  all  three  were  State  banks  issuing  bills  convertible  into 
coin,  though  each  confined  its  business  mostly  to  the  city 
in  which  it  was  located.  Two  years  later  under  the 
auspices  of  Alexander  Hamilton,  then  Secretary  of  the 
Treasury,  the  first  "  United  States  Bank  "  went  into  opera- 
tion at  Philadelphia  under  a  charter  from  Congress  that 
was  to  run  twenty  years  with  a  capital  stock  of  $10,000,000. 
At  first  no  bills  were  issued  by  this  bank  of  a  less  denom- 
ination than  $10 ;  the  money  was  popular  and  was  converted 
on  demand ;  the  Bank  was  prosperous,  and  paid  dividends 
to  stockholders  never  falling  below  8%  and  frequently 
rising  to  10%  annually;  as  the  time  approached  for  the 
charter  to  expire,  the  stockholders  were  anxious  for  a 


COMMERCIAL   CREDITS.  289 

renewal  of  their  privileges ;  but  the  opposition  to  them  in 
Congress  was  now  strong,  owing  mainly  to  the  increase  in 
the  number  of  State  banks  from  3  to  88 ;  and  accordingly 
the  recharter  was  defeated  in  the  House  by  one  vote,  and 
in  the  Senate  also,  by  the  casting  vote  of  the  Vice-Presi- 
dent,  and  the  Bank  was  obliged  to  wind  up  its  affairs  in 
1811. 

Then  came  in  a  sort  of  mania  for  the  creation  of  new 
State  banks,  under  the  hope  that  these,  now  there  was  no 
National  Bank,  might  obtain  the  Custody  and  temporary 
use  of  the  national  funds,  and  especially  might  furnish  the 
country  with  paper  money  in  the  shape  of  State  bank  bills. 
The  number  of  banks  went  up  to  246  in  1816.  So  many 
bank  bills  were  put  out,  and  became  so  much  distrusted, 
and  so  many  were  presented  for  redemption,  that  the  banks 
'could  not  respond  in  coin,  and  in  the  fall  of  1814,  there 
was  a  general  stoppage  of  specie  payment  in  all  the  banks 
of  the  Country  excepting  those  in  New  England.  General 
resumption  of  specie  payment  by  the  banks  did  not  take 
place  till  1819.  New  York  bank  bills  went  down  to  90%, 
those  of  Philadelphia  to  82%,  those  of  Baltimore  to  80%, 
and  those  of  Pittsburg  to  75%. 

Under  these  circumstances  the  Second  Bank  of  the 
United  States  went  into  operation  in  January,  1817,  also 
with  a  charter  to  run  twenty  years,  with  a  capital  stock  of 
-$35,000,000,  of  which  the  national  Government  subscribed 
one-fifth.  The  new  Bank  helped  indeed  the  State  banks 
to  resume  specie  payments,  as  was  a  part  of  the  purpose, 
but  it  pushed  its  own  bills  into  circulation  with  such  eager- 
ness, that  it  is  thought  $100,000,000  of  them  were  in  the 
hands  of  the  people,  before  the  first  year  was  out.  In  this 
way  the  Bank  fell  into  difficulties.  Its  bills  were  distrusted. 
Coin  came  to  bear  a  premium  over  them  of  10%.  Presi- 
dent Jackson  began  his  famous  contest  with  the  Bank  seven 


290  PRINCIPLES    OF   POLITICAL    ECONOMY. 

years  before  its  charter  was  to  expire,  and  took  care  that  it 
went  out  of  being  the  same  year  that  he  went  out  of  office, 
in  183T,  namely. 

The  next  year  the  State  banks  increased  in  number  to 
675,  and  continued  to  increase  till  1862,  when  there  were 
over  1500  of  them,  and  when  the  issue  of  the  "  Greenbacks  " 
by  the  national  Government  interfered  with  what  had  been 
their  exclusive  issuing  of  the  paper  money  after  1837.  In 
1857,  before  the  commercial  panic  of  that  year,  the  aggre- 
gate of  their  bills  stood  at  1214,000,000,  the  largest  it  ever 
reached.  These  bills  were  nominally  convertible  into  coin 
at  the  will  of  the  holders,  but  they  were  never  actually  so 
convertible  for  any  great  length  of  time.  The  ratio  of 
their  volume  to  the  specie  reserved  to  redeem  it  was  always 
a  very  high  ratio.  For  instance,  the  average  for  the  whole 
country  in  January,  1863,  was  4:1;  in  Rhode  Island  12:1; 
and  in  Vermont  28 : 1.  Such  a  paper  money  can  be  called 
convertible  only  by  a  stretch  of  courtesy. 

It  was  wisely  determined  by  the  People  to  abandon  this 
loose  form  of  paper  money,  and  in  1863  went  into  opera- 
tion the  present  national  banking  system,  under  which 
originally  1300,000,000  of  bank  bills  were  authorized  to  be 
issued  in  the  aggregate,  but  this  limit  was  extended  in  1870 
to  1354,000,000,  and  the  Act  of  1875  removed  all  restric- 
tions on  the  total  amount,  while  there  have  always  been 
restrictions  on  the  amount  that  can  be  issued  by  any  one 
bank  in  the  system.  By  the  law  of  1882,  national  banks 
may  withdraw  their  bills  by  depositing  lawful  money  in  the 
Treasury  to  take  them  up,  and  then  take  back  the  propor- 
tionate amount  of  the  bonds  held  for  the  security  of  the 
bills.  There  were  outstanding  Dec.  26, 1883,  $341,320,256 
of  these  national  bank  bills,  but  their  volume  declined 
under  the  law  of  1882  to  1151,702,809  on  Oct.  4,  1888. 
These  bills  were  from  the  first  redeemable  in  •  greenbacks, 


COMMERCIAL   CREDITS.  291 

which  were  themselves,  however,  irredeemable  in  gold  and 
silver  till  New  Year's,  1879,  since  which  time  till  the  present 
all  the  paper  money  of  the  United  States  of  both  kinds 
has  been  convertible  into  coin  at  the  will  of  the  holder. 

d.  Bank  Deposits.  We  are  studying  in  order  the  forms 
of  commercial  Credits,  and  we  have  now  come  to  that  one 
which  is  central  in  the  operations  of  Banking,  and  accord- 
ingly this  is  the  place  for  us  to  understand  clearly  what  a 
Bank  is,  who  a  Banker  is,  and  what  are  the  motives  actu- 
ating at  once  the  Banker  and  his  Customers.  A  BANK  is 

AN  INSTITUTION  FOR   THE  CREATION,  MANAGEMENT,  AND 

EXTINCTION  OF  CREDITS.  Money  of  any  kind  plays  a  very 
subordinate  part  in  the  general  operations  of  banks,  which 
live  and  move  and  have  their  being  in  the  sphere  of  pure 
Credits.  Bankers  are  buyers  and  sellers  of  credits.  As  mer- 
chants are  dealers  in  commodities,  so  bankers  are  dealers 
in  credits,  buying  (1)  some  credits  with  other  credits, 
(2)  some  credits  with  money,  and  (3)  money  also  with 
credits.  Before  unfolding  these  three  operations  of  bank- 
ers in  their  motives  and  profits,  a  glance  backward  to  the 
origin  of  banks  would  be  a  help  to  us  in  grasping  their 
nature  and  benefits. 

The  word  "  bank  "  meant  originally  a  mass  or  pile  or 
ridge  of  earth,  as  we  still  say,  a  sand-bank,  and  the  banks 
of  a  river.  When  first  applied  to  commercial  transactions, 
the  word  had  a  different  meaning  from  what  it  has  at  pres- 
ent, although  the  idea  of  credit  has  inhered  in  it  from  the 
first:  in  1171,  the  Republic  of  Venice,  being  at  war, 
ordered  a  forced  loan  from  its  citizens,  and  promised  to 
pay  interest  on  it  at  5  %  ;  and  certificates  were  issued  for 
the  sums  paid  in,  and  public  commissioners  were  appointed 
to  manage  the  payment  of  the  interest  and  the  transfers  of 
the  certificates,  which  were  made  negotiable.  The  Italian 
word  applied  to  such  a  public  loan  is  monte,  but  as  the 


292  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Germans  were  then  strong  in  Italy,  the  German  equivalent 
word,  bank,  came  to  be  used  alongside  of  it  and  instead  of 
it.  It  meant  this  common  contribution  of  the  citizens  to 
the  wants  of  the  State,  represented  by  the  mass  of  the  cer- 
tificates, and  came  to  be  applied  also  to  the  place  where  the 
commissioners  paid  the  interest  and  transferred  the  shares. 
Two  other  such  loans  were  contracted  there  afterwards, 
and  an  English  writer,  in  1646,  quoted  by  Macleod,  speaks 
of  the  "  three  banJces  of  Venice"  meaning  these  three  pub- 
lic debts,  including  the  evidences  of  them  and  the  place 
where  they  were  managed. 

The  Bank  of  England  also  was  in  its  origin  in  1694  an 
incorporation  of  those  persons  willing  to  subscribe  to  a 
public  loan  in  time  of  stress,  as  "  The  Governor  and  Com- 
pany of  the  Bank  of  England."  The  subscribers  to  a  loan 
of  £1,200,000  became  an  association,  or  bank,  on  the  condi- 
tion that  the  Government  should  pay  interest  to  the  lenders 
at  8%  annually,  and  also  £4000  a  year  in  addition  for  the 
management  of  the  bank,  that  is,  of  this  debt  of  £1,200,- 
000  which  was  the  sole  capital  stock  of  the  new  Company, 
which  was  authorized  to  issue  an  equivalent  amount  of 
bank  bills  to  circulate  as  money.  The  capital  stock  was 
of  no  use,  so  far  as  redeeming  these  bills  was  concerned, 
the  stockholders  must  furnish  other  money  for  that  pur- 
pose besides  what  they  have  loaned  to  the  State,  but  the 
ownership  of  so  much  of  the  public  debt  divided  among 
the  shareholders,  made  the  Bank  respectable,  and  tended 
to  give  public  credit  to  its  bills,  which  at  first  were  paid 
promptly  in  coin  on  demand,  and  thus  the  Bank,  by  in- 
creasing the  volume  of  money  and  by  showing  confidence 
in  the  stability  of  the  State,  strengthened  the  revolution- 
ary position  of  William  and  Mary,  and  consequently  the 
Whigs  were  the  friends  and  the  Jacobites  the  enemies  of 
the  Bank.  This  function  of  issuing  bills  or  promissory 


COMMERCIAL   CREDITS.  293 

notes  designed  to  circulate  as  money,  thus  begun  and  still 
continued  by  the  Bank  of  England,  is  much  less  important 
in  modern  banking  than  the  other  two  functions  of  receiv- 
ing Deposits  and  making  Discounts,  but  it  was  the  func- 
tion on  which  the  turn  began  to  be  made  from  the  older 
to  the  newer  modes  of  Banking.  All  that  is  needful  to  be 
said  on  this  tertiary  or  money-issuing  function  of  Banks 
has  been  already  urged  under  the  last  head. 

The  two  Banks  of  the  United  States  in  succession,  as 
they  were  more  or  less  modelled  after  the  Bank  of  Eng- 
land, gave  the  same  prominence  to  the  function  of  issuing 
paper  money,  under  the  belief  that  government  bonds 
afford  the  best  security  for  the  redemption  of  bank  bills, 
an  idea  that  underlies  our  present  system  of  National 
Banks  also ;  and,  moreover,  those  two  great  banks  began 
to  teach  the  people  of  the  United  States  something  of  the 
mysteries  of  Deposit-banking,  the  point  that  we  have  now 
in  hand.  One-fifth  of  the  capital  stock  of  the  first  Bank, 
$2,000,000  out  of  $10,000,000,  was  subscribed  by  the 
national  Government ;  and  besides,  the  proceeds  of  the  na- 
tional taxes  as  they  were  paid  in  were  passed  over  to  the 
Bank  as  Deposits,  that  is  to  say,  the  Bank  bought  this 
money  of  the  Government,  paying  for  it  with  a  Credit ; 
and  then  properly  used  the  money  as  its  own  in  paying 
expenses  and  in  discounting  paper.  Bank  deposits  do  not 
belong  to  the  depositors,  but  to  the  bank  ;  which  has  thus 
bought  money  with  credit;  and  when  Andrew  Jackson 
suddenly  removed  from  the  second  Bank  of  the  United 
States  the  national  moneys  deposited  there,  and  placed 
them  "in  the  custody,"  as  he  expressed  it,  of  certain 
selected  State  banks,  these  amounted  at  the  moment  to 
$10,000,000,  and  the  discount  line  resting  in  part  on  these 
deposits  was  at  the  time  over  $60,000,000,  he  removed 
them  under  a  strong  misapprehension  of  the  nature  of  such 


294  PRINCIPLES    OF    POLITICAL   ECONOMY. 

deposits;  and  their  removal  affected  credit,  and  disarranged 
business  to  a  remarkable  degree,  and  caused  intense  ex- 
citement all  over  the  Union.  Depositing  those  national 
moneys  with  the  Bank  was  a  trade  between  the  Govern- 
ment and  the  Bank  for  the  time  being.  The  Government 
took  in  return  for  the  moneys  a  Right  to  demand  of  the 
Bank  in  future  by  cheque  or  otherwise  sums  at  its  con- 
venience to  the  aggregate  of  the  sums  deposited;  the 
moneys  became  the  property  of  the  Bank  to  be  used  at  its 
discretion  in  its  ordinary  business ;  the  Government  took 
its  return-service  for  the  moneys  in  a  Credit,  that  is,  a  right 
to  draw  out  at  its  convenience  in  the  future  corresponding 
sums ;  there  was  a  commercial  understanding  in  that  case 
between  the  Government  and  the  Bank  underlying  the 
buying  and  selling  involved  in  the  Deposit,  as  there  always 
is  between  depositors  and  their  banks;  the  banks  are 
always  bound  to  order  their  business  in  such  a  way  as  to 
be  able  to  respond  to  every  depositor's  call  for  money, 
when  it  comes ;  but  banks  in  general  find  practically  that 
a  cash  reserve  of  one-third  of  their  Deposits  is  ample  to 
answer  the  current  demands  of  their  depositors,  and  the 
remaining  two-thirds  may  be  safely  used  in  discounting 
short-time  commercial  paper  to  their  own  profit;  Deposits, 
accordingly,  are  not  placed  "  in  the  custody  "  of  the  banks 
receiving  them;  they  are  really  bought  by  the  banks  of 
their  customers,  who  receive  in  return  certain  privileges 
and  credits  that  they  prefer  to  the  "  custody  "  of  their  own 
moneys ;  and  under  these  general  motives  on  both  sides, 
there  has  grown  up  in  all  commercial  countries  an  immense 
line  of  Bank  Deposits  so-called,  and  perhaps  we  may  say 
that  the  principal  function  of  banks  at  present  is  to  buy 
these  deposits  with  their  Credit,  and  then  to  handle  them 
in  further  operations  to  the  convenience  of  their  customers 
and  to  their  own  gain. 


COMMERCIAL   CREDITS.  295 

Under  our  present  national  banking  system  the  Gov- 
ernment is  still  a  depositor  of  public  moneys  in  some  of 
the  banks  designated  as  "  depositaries."  At  the  close  of 
the  fiscal  year,  1888,  there  were  290  of  such  depositary 
national  banks,  and  the  Treasurer  held  United  States  bonds 
of  the  face  value  of  $56,128,000  and  the  market  value  of 
168,668,182  in  trust  for  these  banks  to  secure  public 
moneys  lodged  with  them.  This  system  of  national 
deposit  with  the  banks  began  in  1864.  The  total  held  by 
the  banks  June  30,  1888,  was  158,712,511,  an  increase 
during  the  year  of  135,395,633. 

But  our  concern  is  especially  with  the  Bank  Deposits 
of  individuals,  with  their  motives  in  making  these,  and 
with  the  motives  and  the  methods  of  the  bankers  in  hand- 
ling them.  In  order  to  draw  the  confidence  of  the  people 
in  its  locality,  a  bank  must  not  only  be,  but  also  seem  to 
be,  well-to-do  and  prosperous.  Most  bankers  find  it  to 
their  account  to  become  known  owners  of  public  stocks  ; 
and  in  many  cases,  as  in  the  present  national  banks  of  this 
country,  are  required  by  law  to  own  such  stocks,  and  this 
gives  them  a  kind  of  credit  and  public  standing  scarcely 
to  be  reached  by  the  ownership  of  ordinary  property. 
Thus  the  Bank  of  England  held  at  the  outset  £1,200,000, 
and  now  holds  .£15,000,000  of  securities,  mostly  of  the 
public  debt  of  England.  As  merchants  begin  by  laying 
in  stocks  of  goods  of  the  kinds  they  purpose  to  deal  in  and 
offering  them  for  sale,  so  bankers  begin  by  bringing 
together  money  and  credits  of  their  own  in  order  to  attract 
to  themselves  in  the  way  of  buying  and  selling  the  money 
and  credits  of  other  people.  In  order  to  deal  successfully 
in  credits  the  banker  must  have  credit,  that  is,  he  must 
have  the  reputation  of  having  property  of  his  own,  and  of 
being  an  honest  and  careful  manager  of  his  own  affairs  and 
of  the  affairs  of  others  so  far  as  they  are  intrusted  to  him. 


296  PRINCIPLES   OF   POLITICAL  ECONOMY. 

Each  of  our  present  national  banks,  now  (1890)  3150  in 
number,  must  have  by  la\v  a  paid-up  capital  of  not  less 
than  1100,000,  and  in  cities  of  50,000  people  their  capital 
must  not  be  less  than  $200,000  each,  except  that  in 
places  having  less  than  6000  inhabitants  banks  with  not 
less  than  150,000  capital  may  be  organized  at  the  discretion 
of  the  Secretary  of  the  Treasury.  The  main  purpose  of 
all  this  is  to  secure  strong  financial  organizations  fitted  to 
draw  the  confidence  of  the  communities  in  which  they  are 
placed,  and  in  this  manner  and  by  means  also  of  constant 
national  supervision  to  attract  the  Deposits  of  the  people 
to  the  banks. 

Now,  as  was  said  a  little  while  ago,  perhaps  the  central 
function  in  banking  is  for  the  banker  to  receive  his  cus- 
tomer's money  and  also  his  credits  falling  due,  and  to 
render  to  him  in  return  for  these  a  credit,  that  is,  a  right 
to  demand  from  himself  an  equal  sum  at  a  future  time 
or  times.  The  evidence  of  this  right  is  entered  on  the 
banker's  books,  and  usually  too  on  the  customer's  pass- 
book, and  thus  becomes  what  is  called  a  DEPOSIT.  The 
ownership  of  the  money  and  of  the  credits  deposited 

passes  over  completelv  from  the  customer  to  the  banker. 

1         J  » 

It  is  a  complete  case  of  buying  and  selling  to  the  mutual 
profit  of  the  parties.  The  banker  has  the  right  to  do  just 
what  he  pleases  with  his  deposits,  and  the  customer  has  a 
right  to  draw  cheques  on  his  credit  as  and  when  he 
pleases  ;  only  the  banker's  entry  of  the  transaction  on  his 
books  is  a  virtual  and  a  legal  promise  to  pay  that  amount 
to  his  customer,  and  therefore  he  must  be  ready  to  re- 
spond to  his  customer's  call,  whenever  the  latter  demands, 
not  his  own  money,  but  so  much  of  his  banker's  money. 
A.  deposit,  accordingly,  is  not  the  very  thing  deposited,  but 
a  credit.  It  is  the  banker's  promise  and  the  depositor's 
property.  It  is  in  this  way  that  a  banker  buys  ready 
money  with  a  credit, 


COMMEECIAL   CREDITS.  297 

The  motive,  then,  that  leads  the  depositor  to  intrust  his 
money  to  the  banker  is  the  desire,  not  to  have  that  specific 
money  kept  safely  for  him,  for  he  lost  possession  of  it 
absolutely  when  it  passed  the  counter,  he  sold  it  and  took 
his  pay  in  something  else,  but  rather  to  have  the  unques- 
tioned right  to  call  on  the  banker  for  such  sums  (not  to 
exceed  the  deposit  in  the  aggregate)  and  at  such  times  as 
may  suit  his  own  convenience.  He  has  such  confidence 
in  the  integrity  and  solvency  of  the  banker,  finds  it  so 
practically  convenient  to  have  dealings  with  him,  and 
comes  to  have  certain  minor  privileges  at  the  bank  in 
other  relations  over  non-depositors,  that  he  quite  prefers  a 
credit  on  the  banker  to  the  possession'  of  the  money  itself. 

The  corresponding  motive  of  the  banker  to  receive  his 
customer's  funds  on  these  terms  is  that  he  finds  by  expe- 
rience (his  own  and  others'),  that  he  can  safely  use  a 
large  portion  of  these  moneys  deposited  in  other  opera- 
tions in  credit  profitable  to  himself,  and  at  the  same  time 
be  practically  sure  of  meeting  all  his  customer's  calls  for 
money  as  they  are  made.  Every  good  banker  finds  out, 
that  many  of  his  customers  wish  always  to  leave  a  balance 
in  his  hands ;  that  while  some  of  them  are  constantly 
drawing  cheques  on  him  for  cash,  others  of  them  are  as 
constantly  depositing  with  him  in  cash;  and  that  con- 
sequently he  can  properly  and  safely  use  a  large  part  of 
the  money  he  has  purchased  with  his  credit  to  purchase 
other  credits  with.  Deposit-banking,  therefore,  is  not  only 
convenient  and  profitable  for  the  depositor,  but  also 
excellent  and  profitable  for  the  banker. 

Besides  these  two  parties  benefited,  there  is  a  gain,  too, 
for  the  community  at  large  in  deposit-banking ;  inasmuch 
as  a  new  capital  as  such  has  been  thereby  created,  a  series  of 
new  values,  which  would  not  otherwise  have  existed  at  all. 
Were  there  no  deposit-bank  in  that  locality,  every  man  now 


300  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Exchange  soon  to  be  characterized,  but  the  entire  function 
of  discount  is  so  peculiar,  that  the  paper  subjected  to  it 
ought  to  be  enumerated  in  a  classification  of  the  instru- 
ments of  Credit.  The  discounting  of  commercial  paper  is 
the  second  essential  function  of  banking,  as  the  buying 
and  handling  of  deposits  is  the  first;  and  it  is  more  in 
accordance  with  genuine  banking  to  pass  the  price  of  the 
paper  discounted  to  the  seller's  credit  in  the  form  of  a 
deposit,  that  is,  to  buy  one  credit  by  creating  another,  than 
to  pay  the  money  over  the  counter  at  once,  and  thus  to 
buy  credits  with  money.  Those  who  do  the  latter  are 
called  bill-discounters  rather  than  bankers,  but  most  of  our 
bankers  do  both,  though  there  is  a  tendency  towards  the 
separation  of  the  two  in  this  country  also. 

Manufacturers  and  wholesale  merchants  usually  sell 
their  goods  on  time,  as  it  is  called,  say  three  or  six  months. 
Debts  are  thus  created,  or  to  say  the  same  thing  in  other 
words,  Credits  are  thus  given.  The  manufacturer  or  whole- 
saler is  creditor  and  the  jobber  or  retailer  is  debtor.  But 
a  debt  is  property ;  and  the  creditor  in  this  case  wishes  to 
avail  himself  of  his  property  at  once  for  further  produc- 
tion ;  so  he  either  takes  a  Promissory  Note  from  his  debtor, 
or  draws  a  Bill  of  Exchange  upon  him,  and  this  piece  of 
property  is  ready  for  sale.  Neither  piece  mentions  interest 
expressly,  but  the  face  sum  virtually  covers  it  as  con- 
templating discount.  Banks  have  been  organized  for  the 
express  purpose  of  buying  for  their  own  profit  and  for  the 
convenience  of  business  such  pieces  of  property;  some 
banker,  accordingly,  buys  this  particular  piece,  that  is  to 
say,  this  creditor  passes  over  to  this  banker  the  commercial 
right  to  demand  payment  from  this  debtor  at  the  end  of 
three  months,  and  receives  in  return  from  the  banker  either 
money  direct  or  so  much  of  the  banker's  credit,  that  is,  a 
deposit  in  favor  of  the  creditor  on  the  banker's  books. 


COMMERCIAL   CREDITS.  301 

For  furnishing  this  creditor  either  with  ready  money  or 
a  more  available  credit  in  lieu  of  his  mercantile  paper,  the 
banker  charges  of  course  a  percentage.  This  is  Discount. 
Discount  is  the  difference  between  the  face  and  the  price  of 
the  paper.  This  percentage  called  discount  is  the  chief 
source  of  profit  in  ordinary  banking.  It  is  virtually  com- 
pound interest  on  the  sum  advanced  till  the  maturity  of 
the  paper,  when  the  banker  realizes  from  the  debtor  its  full 
face. 

The  following  is  a  common  form  of  a  bankable  note:  — 

$1,000  WILLIAMSTOWN,  Mass.,  Nov.  10,  1889. 

Three  months  after  date  I  promise  to  pay  to  the  order  of  JOSHUA 
SWAN,  one  thousand  dollars,  payable  at  the  Williamstown  National  Bank, 
value  received. 

Due  Feb.  10/13  LEANDER  ALLEN. 

When  Swan  has  put  his  name  on  the  back  of  this  note, 
that  is  in  bank  phrase,  has  indorsed  it,  in  token  that  he 
thereby  at  once  sells  and  guarantees  it  to  the  bank,  it  is 
then  discounted  on  the  strength  of  the  two  names,  Allen 
and  Swan.  As  Allen  technically  takes  the  advance  from 
the  bank  for  his  own  benefit,  he  is  technically  expected  to 
take  up  the  note  when  it  matures,  and  if  he  do  not,  the 
bank  falls  back  on  Swan,  who  is  equally  bound  with  Allen 
to  see  that  it  is  paid  at  the  proper  time.  Two  names 
are  nearly  always,  not  always,  requisite  to  a  note  accept- 
able for  discount  at  a  bank ;  and  more  names  merely 
strengthen  the  note,  since  it  is  discounted  on  the  combined 
validity  of  all  the  names  upon  it. 

One  obvious  advantage  of  discount  is,  that  it  tends  to 
make  all  capital  active  and  thus  productive.  It  enables 
the  banks  to  sell  their  credit  and  make  a  gain,  to  use  a  part 
of  their  money  deposits  to  buy  mercantile  paper  with,  and 
so  get  a  bank  interest  on  them ;  it  enables  dealers  in  com- 


302  PRINCIPLES   OF   POLITICAL   ECONOMY. 

modities  to  realize  in  cash  minus  the  discount  the  sum  of 
what  they  have  sold  on  time;  and  by  means  of  accommo- 
dation notes  or  bills,  which  only  differ  from  the  others  in 
that  there  is  no  actual  debt  between  the  parties,  business 
men  may  swell  the  volume  of  their  business  temporarily, 
and  non-business  people  may  borrow  small  sums  for  con- 
venience or  emergencies.  Bankers  have  not  always  credit 
enough  or  money  enough  from  their  depositors  to  buy  in 
either  mode  all  the  good  paper  that  is  offered  to  them,  in 
which  case,  they  raise  the  rate  of  discount  unless  the  law 
forbids,  or  by  easy  evasions  even  when  the  law  forbids ;  or 
else  accommodate  regular  customers  and  large  depositors 
first,  or  buy  of  all  that  are  "  good  "  a  certain  proportion 
only. 

The  discount  line  of  3140  national  banks  reporting 
Oct.  4,  1888,  was  11,674,886,285.29. 

It  is  thus  through  the  purchase  of  discountable  notes  for 
money,  that  banks  derive  their  partial  character  as  money- 
lenders. Also,  such  reserve  sums  as  they  do  not  wish 
to  invest  in  negotiable  paper,  on  account  of  the  time  in- 
volved before  such  paper  matures,  banks  frequently  loan 
on  call  to  those  customers  who  have  good  collateral  secu- 
rities to  pledge  for  the  repayment  of  such  loans.  The 
terms  of  such  a  contract  give  the  bank  full  authority  to 
sell  such  collateral  "  at  the  Brokers'  Board  or  at  public  or 
private  sale,  or  otherwise  at  said  bank's  option,  on  the  non- 
performance  of  this  promise,  and  without  notice"  So  far 
forth  banks  become  direct  money-lenders.  It  ought  also 
to  be  added,  that  promissory  notes  with  a  single  name  (or 
more)  are  often  discounted  by  banks  partly  on  the  strength 
of  collateral  securities  deposited  to  fortify  the  names  upon 
the  notes. 

/.  Bills  of  Exchange.     A  Bill  of  Exchange  is  a  written 
instrument   designed  to  secure  the  payment  of  a  distant 


COMMERCIAL   CREDITS.  303 

i 

debt  without  the  transmission  of  money,  being  in  effect  a 
setting-off  or  exchange  of  one  debt  against  another.  It 
is  in  form  and  in  several  technicalities  different  from  a 
promissory  note,  inasmuch  as  it  is  an  order  to  pay  instead 
of  a  promise  to  pay,  and  inasmuch  as  the  maker  of  a  note 
is  always  debtor  and  the  drawer  of  a  bill  of  exchange  is 
always  creditor ;  but  all  this  makes  practically  very  little 
difference  between  the  two  as  instruments  of  Credit,  since 
nearly  all  bills  of  exchange  come  into  banks  in  the  way  of 
ordinary  business,  either  for  discount  or  collection,  and  as 
the  banks  care  nothing  except  for  names,  the  form  of  the 
purchasable  paper  is  a  matter  of  indifference  to  them. 
The  following  is  the  essential  form  of  an  inland  bill  of 
exchange : — 

83,000  PITTSFIELD,  Mass.,  Oct.  16,  1889. 

Four  months  after  date  pay  to  the  order  of  JOHN  KENT  three  thousand 
dollars,  value  received,  and  charge  the  same  to  account  of 

To  ELI  TRIPP,  Boston,  Mass.  DAN  STORKS. 

In  the  case  of  this  bill,  which  may  serve  as  a  sample  of 
thousands,  Storrs  is  the  draiver,  who  is  creditor  in  relation 
to  Tripp,  and  Tripp  is  drawee,  but  Storrs  is  debtor  in  rela- 
tion to  Kent,  who  is  the  payee.  A  bill  of  exchange  is  the 
sale  of  a  debt,  in  such  a  way  that  two  debts  are  so  far 
forth  set  off  against  each  other,  and  both  transactions  are 
closed  without  sending  any  money  at  all.  Tripp  owes 
Storrs,  and  Storrs  owes  Kent,  and  so  Storrs  pays  Kent  by 
an  order  on  Tripp.  As  this  is  ar  bill  at  four  months,  Kent 
will  doubtless  send  it  to  Tripp  for  his  acceptance,  as  it  is 
called,  that  is,  his  acknowledgment  that  he  owes  Storrs 
to  that  amount,  and  that  he  will  pay  the  sum  to  the  holder 
of  the  bill  when  it  becomes  due.  An  acceptance  is  writ- 
ten on  the  face  of  a  bill,  and  an  indorsement  upon  the 
back  of  the  note :  the  initials  are  sufficient  for  the  name  of 


304  PRINCIPLES   OF   POLITICAL   ECONOMY. 

an  acceptor,  but  the  full  business  name  is  usual  for  an 
indorser. 

Thus  a  bill  of  exchange  is  the  formal  sale  of  a  debt,  in 
order  to  liquidate  thereby  another  debt,  when  the  parties 
to  the  transaction  live  in  different  and  distant  places. 
Storrs  does  business  in  Pittsfield,  and  Tripp  in  Boston,  and 
it  is  a  matter  of  comparative  indifference  where  Kent  lives, 
unless  there  is  trouble  at  the  time  of  collection,  for  he  will 
perhaps  negotiate  this  bill  again,  that  is,  make  use  of  it  to 
pay  some  debt  that  he  himself  owes.  It  is  not  often  that 
the  same  person,  as  Tripp,  happens  to  owe  another  person 
in  a  distant  town,  as  Storrs,  the  same  amount  as  Storrs 
owes  another  person  somewhere,  as  Kent ;  but  by  two  bills 
of  exchange,  one  drawn  by  each  creditor  on  his  own  debtor, 
and  then  each  set  off  against  the  other,  through  the  simple 
and  beautiful  expedient  of  bank  balances,  substantially  the 
same  advantages  are  reached  as  if  it  always  happened  so. 
Many  bills  of  exchange  are  drawn  at  sight,  as  it  is  called, 
in  which  case  the  payee  presents  it  for  payment  to  the 
drawee,  there  is  no  acceptance  and  no  discount,  and  a  bill 
of  this  kind  becomes  the  same  as  a  cheque. 

Time  bills,  however,  are  usually  discounted :  the  payee 
indorses  his  claim  over  to  a  fourth  party  by  name,  or,  by 
what  is  called  an  indorsement  in  blank,  that  is,  by  merely 
writing  his  own  name  on  the  back  of  the  bill,  makes  it 
payable  to  bearer  :  when  banks  buy  these  bills  for  discount, 
it  is  on  the  joint  credit  of  acceptor  and  drawer  and  payee, 
and  in  that  order  of  validity  and  precedence  :  a  promissory 
note  may  be  protested  by  a  bank  without  notice  to  the 
maker,  but  a  bill  of  exchange  cannot  be  without  notice  to 
the  drawer:  a  promissory  note  has  two  parties  to  it,  a 
debtor  and  a  creditor ;  while  a  bill  of  exchange  has  three 
parties  to  it,  two  creditors  and  a  debtor. 

Inland  bills  of  exchange,  both  time  bills  and  sight  bills, 


COMMERCIAL   CREDITS.  305 

are  very  convenient  in  settling  debts  between  distant  places 
without  the  costly,  and  more  or  less  hazardous,  transmis- 
sion of  money  back  and  forth ;  besides  this,  time  bills  pos- 
sess the  very  useful  function  of  enabling  a  debt  due  from 
one  person  to  avail  the  creditor  as  a  means  of  obtaining 
credit  from  a  third  party  in  discount ;  and  in  addition  to 
these  two  points  of  benefit,  it  is  plain,  that  the  common 
use  of  bills  of  exchange  in  all  their  forms  releases  from 
use  large  amounts  of  money  that  would  else  be  needful  in 
trade.  The  less  money  in  use  in  any  country  beyond  a 
certain  point,  the  better,  because,  if  coin,  it  costs  much  to 
mint  and  maintain  it,  and  if  paper,  it  is  difficult  to  make 
and  sustain  it  of  full  value. 

Bankers  sometimes  change  what  they  call  "  exchange  " 
for  settling  debts  between  distant  places  in  the  same  coun- 
try ;  in  some  case's  there  may  be  a  sound  reason  for  this, 
in  other  cases  there  is  none,  but  in  all  cases  it  adds  a  little 
to  the  profits  of  the  banks  for  handling  the  bills  of  exchange ; 
the  principle  of  charging  an  "  exchange  "  is  this,  —  when 
one  place  as  Chicago  draws  more  bills  on  another  place  as 
New  York  than  suffice  to  cancel  the  bills  drawn  at  that 
time  by  New  York  on  Chicago,  the  point  at  which  the 
larger  indebtedness  lies  is  the  point  for  sending  drafts  to 
which  banks  naturally  charge  a  percentage  ;  perhaps  the 
idea,  which  is  actually  realized  in  foreign  exchange,  that 
money  may  have  to  be  sent  to  liquidate  such  a  balance, 
may  have  brought  in  the  custom  of  charging  "  exchange  " 
in  such  cases ;  and  there  are  instances  aside  from  such  a 
supposed  balance,  in  which  there  may  be  an  extra  cost  of 
collection  in  some  form  to  the  bank,  that  may  justify  an 
"  exchange  "  charge ;  but  there  is  another  principle  coun- 
terworking and  often  neutralizing  entirely  this  alleged 
doctrine  of  a  " balance"  of  debt  as  between  two  distant 
places,  namely,  that  the  chief  settling  place  and  commercial 


306  PRINCIPLES   OF   POLITICAL  ECONOMY. 

centre  of  a  country,  such  as  New  York  is,  draws  towards 
itself  from  the  whole  circuit  with  such  force,  everybody 
wanting  a  balance  there  and  having  occasion  to  send  funds 
thither,  that  drafts  on  such  a  place  are  apt  to  bear  a  pre- 
mium without  any  reference  to  its  comparative  indebtedness 
at  the  time. 

Very  similar  to  these  inland  bills  in  their  nature  and 
course  and  usefulness  are  Foreign  Bills  of  Exchange, 
which,  as  a  vastly  important  topic,  especially  in  its  rela- 
tions with  Foreign  Trade,  we  must  now  study  minutely 
and  completely.  Commercial  relations  between  two  coun- 
tries, let  us  say,  for  instance,  France  and  England,  always 
give  rise  to  a  mutual  indebtedness  of  their  merchants ;  if 
these  reciprocal  debts  were  all  to  be  paid  by  the  actual 
sending  of  money  to  and  from,  there  would  have  to  be  a 
constant  and  expensive  and  more  or  less  hazardous  out- 
ward and  inward  flow  of  the  precious  metals  in  respect  to 
each  country;  all  which  necessity  is  neatly  obviated  by 
the  use  of  reciprocal  bills  of  exchange,  and  coin  is  only 
transmitted  to  settle  the  balances  on  whichever  side  there 
may  happen  an  excess  of  debt  at  the  time.  French  dealers 
are  always  sending  goods  to  England,  and  English  dealers 
goods  to  France ;  and  for  what  they  send  to  England  the 
French  merchants  draw  bills  of  exchange  on  the  parties  to 
whom  the  goods  are  consigned,  and  the  English  merchants 
draw  similar  bills  on  their  debtors  in  France ;  then  these 
bills  are  bought  up  by  bankers  or  brokers  in  either  coun- 
try, and  virtually  exposed  again  for  sale  through  new  bills 
drawn  against  them  to  any  parties  who  may  have  debts  to 
pay  in  the  other  country.  Thus  bills  on  London,  in  other 
words,  on  English  debtors,  are  always  for  sale  in  France ; 
and  bills  on  France,  that  is,  on  French  debtors,  are  always 
for  sale  in  London ;  the  reciprocal  debtors  of  the  two 
countries,  therefore,  instead  of  sending  coin  to  cancel  their 
debts,  buy  and  transmit  these  bills. 


COMMERCIAL   CREDITS.  307 

Let  us  take  a  sample  instance.  Pierre  &  Co.  of  Paris 
send  a  cargo  of  wine  worth  <£1000  in  English  money  to 
John  Barclay  of  London.  Barclay  thus  becomes  indebted 
to  the  Paris  firm  to  that  amount,  and  Pierre  &  Co.  draw 
at  once,  so  soon  as  the  cargo  is  despatched,  a  bill  in 
francs  to  the  equivalent  of  £1000.  If  they  themselves 
have  no  debt  to  pay  in  London,  they  will  sell  this  bill 
immediately  to  a  Paris  banker  or  broker  (if  the  exchange 
be  then  at  par)  for  its  full  face  minus  interest  for  the  time 
it  has  to  run,  say  two  months;  this  broker  is  now  ready  to 
sell  this  bill  again,  or  what  is  the  same,  his  own  bill  drawn 
on  the  strength  of  it,  to  anybody  in  Paris  who  may  have  a 
debt  to  pay  in  London;  and  the  party  in  London  who 
receives  it  in  liquidation  of  a  French  debt  to  him,  presents 
it  at  maturity  to  John  Barclay  for  payment.  Thus  one 
bill  of  exchange  serves  the  ends  of  two  creditors  and  one 
debtor :  Pierre  &  Co.  get  their  pay  for  the  wine,  the  Lon- 
don party  gets  his  pay  for  goods,  and  Barclay  pays  his 
debt,  by  means  of  it.  A  bill  drawn  in  London  for  a  cargo 
of  hardware  sent  to  Paris  is  similarly  negotiated  with  a 
London  broker  or  banker,  and  finds  its  way  similarly  to 
France  in  payment  of  some  English  debt  owed  there,  and 
ends  its  course  when  it  reaches  the  French  firm  on  which 
it  was  originally  drawn. 

We  are  now  in  position  to  understand  clearly  what  is 
meant  by  the  par  of  Exchange  in  its  commercial  (not  coin- 
age) import.  The  merchants  in  Paris,  who  have  debts 
due  to  them  from  London,  draw  bills  of  exchange  for  the 
amount  of  these  debts  ;  and,  through  the  agency  of  mid- 
dlemen, go  into  the  market  to  sell  these  bills  to  other  Paris 
dealers  who  have  debts  to  pay  in  London.  If  the  former 
class  have  a  larger  amount  to  sell  than  the  latter  have 
occasion  to  buy,  in  other  words,  if  there  be  a  larger  amount 
of  debts  due  from  London  to  Paris  than  from  Paris  to  Lon- 


308  PKINCIPLES   OF   POLITICAL  ECONOMY. 

don,  then  the  natural  competition  of  the  sellers  in  Paris  of 
the  bills  on  London  will  lower  their  price  somewhat  in 
that  market  (Paris),  in  order,  as  usual,  that  the  Supply 
and  Demand  may  be  equalized  there.  In  this  case  the  par 
of  exchange  is  disturbed,  a  bill  on  London  for  ,£100  in 
francs  may  not  sell  for  over  <£99,  and  the  exchange  is  then 
said  to  be  1%  against  London,  or,  which  is  the  same  thing, 
1%  in  favor  of  Paris. 

The  par  of  Exchange,  accordingly,  between  two  coun- 
tries, depends  on  the  substantial  equality  of  their  commer- 
cial debts.  In  the  above  example,  if  the  exchange  as 
against  London  in  favor  of  Paris  continue  long,  and  espe- 
cially if  the  premium  of  1%  on  bills  drawn  in  London  on 
Paris  be  sufficient  to  cover  the  expense  of  the  transmission 
of  specie  from  London  to  Paris,  gold  will  begin  to  flow 
from  London  to  Paris,  because  the  debtors  there  may  find 
it  cheaper  for  themselves  to  buy  and  send  gold  than  to  pay 
the  high  premium  on  bills;  and  thus  the  equilibrium  of 
payments  and  the  commercial  par  may  be  restored.  Also, 
this  par  tends  to  restore  itself,  without  any  sending  of 
specie,  in  this  other  perfectly  natural  and  effectual  way: 
if  bills  on  Paris  are  at  a  premium  in  London,  for  the  same 
reason  that  they  are  so  will  bills  on  London  be  at  a  dis- 
count in  Paris ;  therefore,  there  will  be  a  direct  encourage- 
ment to  the  extent  of  the  premium  for  exportation  of  goods 
from  England  to  France,  because  on  every  cargo  thus  sent 
bills  can  be  drawn  and  sold  in  London  for  a  premium; 
while  the  more  bills  on  Paris  thus  offered  in  London,  the 
more  the  premium  disappears  of  course,  and  the  par  will 
be  restored  so  soon  as  the  bills  on  Paris  substantially  equal 
the  bills  on  London  offered  in  Paris ;  and  at  the  same  time, 
so  long  as  the  discount  on  London  bills  continues  in  Paris, 
there  is  a  direct  discouragement  to  further  exportations 
from  France  to  England,  because  the  bills  drawn  in  virtue 


COMMERCIAL  CREDITS.  309 

of  such  cargoes  can  only  be  sold  below  par,  and  this  too 
tends  to  restore  the  par  in  the  commercial  sense  of  the 
term. 

Here  is  another  instance  of  a  magnificently  comprehen- 
sive law,  by  which  Nature  vindicates  her  right  to  reign  in 
the  domain  of  Exchange.  It  is  through  this  natural  and 
beneficent  law  of  automatic  compensations,  stimulating 
exportations  on  the  one  side  and  slackening  them  on  the 
other,  that  most  of  the  casual  disturbances  of  the  commer- 
cial par  as  between  two  countries  are  easily  and  perfectly 
rectified. 

While  this  great  law  is  in  full  possession  of  our  minds, 
let  us  note  in  passing  how  artificial  restrictions  by  one 
country  on  the  importation  of  goods  from  another,  com- 
monly called  "  Protectionism,"  affects  this  commercial  par 
as  between  those  two  countries.  Besides  stopping  abso- 
lutely a  mass  of  otherwise  profitable  exportations  and  im- 
portations for  both  countries,  it  makes  less  profitable  to 
the  country  imposing  the  restrictions  whatever  foreign 
trade  does  take  place  between  them  in  spite  of  the  restric- 
tions. Suppose  England,  as  is  the  fact,  opens  her  ports 
freely  to  the  commodities  of  France,  while  France  puts 
restrictions  in  the  shape  of  heavy  taxes  upon  importations 
from  England  ;  more  French  goods  are  likely  under  these 
circumstances  to  seek  English  ports  than  English  goods  to 
seek  French  ports,  because  they  are  more  welcome ;  con- 
sequently, more  bills  of  exchange  drawn  on  London  will 
naturally  be  offered  in  Paris  than  bills  on  Paris  in  Lon- 
don, and  will  so  far  forth  be  sold  at  a  discount,  while  the 
London  bills  drawn  on  Paris  will  be  sold  at  a  premium ; 
in  other  words,  the  comparatively  few  goods  that  do  get 
out  of  a  "  protected  "  country,  realize  less  to  their  owners 
than  the  natural  value,  because  the  bills  drawn  on  them 
are  extremely  apt  to  be  sold  below  par !  With  this  course 


310  PKINCIPLES   OF   POLITICAL  ECONOMY. 

of  things  all  known  facts  agree.  Since  the  United  States 
became  conspicuously  a  "  protected  "  country  a  quarter  of 
a  century  ago,  it  has  been  at  rare  intervals  and  for  short 
periods  that  bills  drawn  here  on  London  have  been  at  par. 
They  have  been  usually  much  below  par.  The  equivalent 
of  <£!  sterling  in  United  States  money  is  $4.8665;  and 
when  bills  on  London  sell  for  less  per  pound  sterling  than 
$4.86,  they  are  at  a  discount  in  New  York  or  Boston ;  and 
exporters  here  are  direct  losers  to  the  extent  of  the  dis- 
count. 

If,  however,  notwithstanding  the  beautiful  action  of 
this  great  law  of  commerce,  the  disturbance  in  the  com- 
mercial par  as  between  two  countries  continues  obstinate, 
it  indicates  one  of  several  things  as  true  of  the  country, 
whose  bills  of  exchange  drawn  on  another  persist  in  a 
considerable  discount;  (1)  it  has  come  to  be  a  pretty 
steady  debtor  country  as  towards  the  other,  by  sending 
thither  its  national  or  State  or  corporation  bonds,  whose 
interest  and  ultimately  principal  also  must  sooner  or  later 
be  remitted  in  exports  extra  to  the  exports  needed  to  pay 
for  the  current  imports  of  goods ;  (2)  it  has  either  nat- 
urally or  by  persistence  in  a  bad  public  policy  little  or  no 
shipping  of  its  own,  so  that  freights  both  ways  have  to  be 
paid  to  foreigners  in  the  form  of  exported  goods  extra  to 
those  exported  to  pay  for  those  imported  in  transient 
trade,  which  of  course  increases  the  number  and  face  of 
the  bills  drawn  in  the  luckless  country  on  the  lucky 
country  or  countries ;  (3)  it  has  made  the  vast  and  fatal 
mistake  of  excluding  by  legal  barriers  of  taxes  put  on  for 
that  purpose  the  goods  of  foreigners,  whose  only  motive 
in  coming  is  to  take  off  corresponding  goods  of  the  de- 
luded country's  own  to  the  profit  of  both,  and  so  these 
last-mentioned  goods  must  seek  a  foreign  market  (if  at 
all)  at  reduced  rates,  their  natural  market  having  been 


COMMERCIAL   CREDITS.  81 1 

destroyed  by  national  law ;  and  (4)  it  may  have  made  the 
national  money  in  which  the  bills  drawn  on  it  are  liable 
to  be  paid  an  inferior  money,  either  transiently  by  mere 
abundance  or  permanently  by  worsened  quality,  which  is 
well  illustrated  in  the  instance  of  Amsterdam  as  cited  in 
a  preceding  chapter,  and  which  can  only  be  remedied  by 
raising  the  standard  of  the  money  to  the  level  of  the 
best. 

Very  little,  if  anything,  can  be  inferred  as  to  the  pros- 
perity of  a  country  or  even  as  to  the  real  condition  of  its 
"  exchanges  "  in  this  technical  sense  of  the  term,  by  the 
transient  movements  of  gold  to  and  from  the  commercial 
countries,  in  their  present  complex  relations  as  gold- 
producing  and  non-gold-producing  countries  and  as  debt- 
settling  and  non-debt-settling  centres.  Gold  moves  back 
and  forth  in  obedience  to  several  other  impulses  than  to 
settle  the  balances  in  an  international  trade  of  Commodi- 
ties. Gold-producing  countries  of  course  export  gold  just 
as  they  would  any  other  native  product.  If  for  any  rea- 
son gold  becomes  relatively  more  abundant  in  one  coun- 
try than  in  other  commercial  countries  around  it,  general 
prices  will  rise  in  that  country  in  consequence ;  which 
means,  that  gold  is  then  and  there  the  cheapest  article 
that  the  people  of  that  country  can  export  to  pay  their 
commercial  debts  with.  Also,  the  imports  which  a  na- 
tion pays  for  in  gold,  or  in  bills  of  exchange  bought 
above  par,  are  often  bought  with  a  high  profit.  Creditor 
nations,  nations  that  have  managed  to  make  themselves 
settling-places  for  the  world's  commercial  debts,  and  na- 
tions that  welcome  imports  without  impediment  from  every 
quarter  of  the  earth  (and  England  may  serve  as  a  sample 
for  all  these  three),  will  largely  pay  for  imports  in  gold 
or  in  bills  bearing  a  premium. 

It  is  a  thousand  pities,  that  technical  terms  which  are 


312  PRINCIPLES   OF   POLITICAL   ECONOMY. 

quite  misleading  unless  one  remembers  their  origin  and 
exact  significance,  have  come  to  be  intrenched  in  com- 
mercial language  too  strongly  to  be  dislodged  at  this  late 
day,  as  the  common  terms  to  express  the  state  of  the 
"  exchanges  "  as  between  two  countries.  These  terms  are 
"against  "  and  "in  favor  of"  The  old  Mercantile  system, 
which  has  left  other  unsavory  progeny  behind  it  besides 
this,  in  order  to  keep  and  heap  gold  and  silver  in  a  country, 
encouraged  exports  in  every  way  and  discouraged  imports, 
in  order  that  the  "  balance  of  trade"  as  the  phrase  ran, 
that  is,  the  difference  in  volume  between  exports  and  im- 
ports, might  come  back  to  the  country  in  gold  and  silver ; 
and  this  foolish  and  now  thoroughly  exploded  notion  gave 
rise  to  the  terms  in  question ;  exchanges  were  then  said 
to  be  "against"  a  country  when  the  record  seemed  to 
show  more  imports  than  exports,  as  if  that  implied  that 
the  imports  were  too  great  for  a  "  balance  "  in  gold  and 
silver ;  and  were  said  to  be  "  in  favor  of  "  a  country  when 
its  export-line  was  greater  than  the  line  of  imports,  as 
implying  a  favorable  balance  to  be  met  by  a  specie-import 
in  future.  The  false  "  System "  is  gone  forever,  but 
the  "  terms  "  still  abide  in  commercial  language,  and  con- 
fuse the  minds  more  or  less  (more  rather  than  less)  of 
everybody  who  tries  to  make  these  terms  a  vehicle  of 
thought.  We  have  now  described  the  causes  and  courses 
of  international  bills  of  exchange  without  resorting  to 
these  technicalities,  which  imply  movements  of  gold  and 
silver  which  do  not  actually  take  place  under  the  condi- 
tions supposed ;  for  example,  the  exchanges  were  "  in 
favor  "  of  the  United  States  in  1874-77,  there  being  an 
apparent  trade  balance  of  $164,000,000  in  1877  and  a  still 
larger  in  1876  and  a  larger  one  .in  the  two  years  pre- 
ceding, but  the  import  of  specie  was  small  in  all  those 
years,  averaging  about  $25,000,000  a  year,  and  the  rest  of 


COMMERCIAL   CREDITS.  313 

the  excess  of  exports  went  to  pay  interest  due  to  for- 
eigners, freights  on  the  cargoes  both  ways,  and  so  on.  It 
is  difficult  to  use  without  abusing  the  terms  "against" 
and  "  in  favor  of  "  in  this  connection,  and  the  reader  is 
cautioned  not  to  employ  them  ;  although  "  discount "  and 
"  premium  "  on  international  bills  of  exchange  are  matters 
extremely  important  to  observe  and  to  know  the  grounds 
of.  Were  there  no  counterworking  principle,  bills  of 
exchange  drawn  on  capitalist  and  creditor  countries,  like 
Great  Britain,  whose  imports  are  apt  to  be  strongly  in  ex- 
cess of  the  exports,  and  whose  public  policy  is  wise  enough 
to  put  no  obstacles  in  the  way  of  the  free  receipt  of  im- 
ports, would  be  at  a  discount  in  countries  sending  exports 
thither. 

This  counterworking  principle,  already  illustrated  as  to 
inland  exchange  in  the  case  of  New  York,  is  best  seen 
internationally  in  connection  with  London,  which  is  the 
settling-place  of  the  world's  commerce.  When  the  Romans 
dredged  the  Thames  and  made  "  the  pool "  just  below 
London  Bridge,  they  took  the  first  steps  towards  making 
that  town  a  commercial  centre ;  since  a  market  for  prod- 
ucts is  products  in  market,  the  busy  exchange  of  commodi- 
ties there  has  quickened  in  every  age  the  accumulation  of 
capital  and  the  increase  of  population ;  previous  to  the 
Dock  Laborers'  Strike  in  1889,  about  100  vessels  entered 
the  port  of  London  every  day,  which  received  about  one- 
half  of  the  total  customs  revenue  of  the  United  Kingdom, 
and  sent  out  about  one-fourth  of  its  exports  ;  the  business 
of  out-of-the-way  and  semi-civilized  countries  has  some- 
how (and  it  would  not  be  hard  to  tell  why)  centered  in 
London,  as  well  as  the  business  of  originally  British 
Colonies  everywhere  and  of  all  other  commercial  coun- 
tries ;  accordingly,  debtors  and  creditors  abound  there,  bills 
of  exchange  concentre  there,  and  debts  due  from  every. 


314  PRINCIPLES   OF   POLITICAL   ECONOMY. 

where  are  payable  there  ;  and  therefore,  because  bills  on 
London  are  good  all  over  the  world,  the  Demand  for  them 
counterworks  the  natural  cheapness  of  the  bills  drawn  on 
exports  thither  as  compared  with  the  natural  dearness  of 
the  bills  drawn  there  on  exports  thence. 

Another  thing  must  be  borne  in  mind  in  comparing  the 
merchandise  accounts  of  any  country,  namely,  that  when- 
ever the  "  exchange  "  is  sufficient  to  cover  the  cost  and 
risk  of  the  transmission  of  gold,  gold  itself  is  likely  to  go 
freely  from  the  country,  in  which  bills  drawn  on  exports 
are  at  a  premium,  or  to  use  for  once  the  old  hazardous 
phrase,  "  against "  which  the  exchanges  have  turned,  and 
bills  will  be  drawn  on  that  gold,  as  upon  common  mer- 
chandise, and  sold  of  course  for  the  sake  of  the  premium  ; 
or,  if  a  decidedly  higher  rate  of  discount  prevail  in  a 
neighboring  country,  gold  will  naturally  go  thither  from 
the  lower-rate  lands,  because  lenders  in  the  latter  will 
desire  to  realize  the  higher  rate  of  current  interest  on 
money,  and  bills  will  be  drawn  on  this  gold  as  well,  which 
will  tend  to  lower  the  premium  on  bills  there ;  unless, 
then,  the  premium  and  the  difference  in  interest  abroad 
will  justify  the  speculation,  the  gold  will  not  stir ;  although, 
if  the  difference  in  interest  abroad  were  very  considerable 
and  promised  to  continue  for  some  time,  the  bills  on  the 
gold  might  sell  at  a  discount  and  still  leave  a  profit  to  the 
senders ;  but  the  home  bankers  can  always  stop  a  drain  of 
gold  of  this  kind  by  raising  their  own  rates  of  discount. 

This  casual  mention  of  bankers  leads  on  to  the  weighty 
point,  that  the  whole  business  of  foreign  exchange  is 
falling  more  and  more  into  the  hands  of  the  bankers, 
because  bills  drawn  by  and  upon  well-known  bankers 
naturally  have  a  better  credit  than  ordinary  commercial 
bills,  the  names  upon  which  are  less  widely  and  favorably 
known.  Accordingly,  persons  sending  cargoes  of  cotton, 


COMMERCIAL   CREDITS.  315 

say,  or  of  any  other  valuables,  from  New  York  to  Liver- 
pool, arrange  with  their  bankers  in  New  York  to  have  the 
proceeds  of  the  cargoes  put  to  the  bankers'  credit  in  Lon- 
don, and  then  these  bankers  draw  bills  on  the  London 
bankers,  which  will  bring  a  higher  price  in  New  York  than 
a  common  commercial  bill,  because  many  remitters  and 
most  travellers  prefer  bankers'  bills,  which,  though  they 
cost  more,  pay  better  and  buy  better  abroad.  Commercial 
bills  are  still  bought  and  sold  in  every  commercial  town, 
but  bankers'  bills  are  more  and  more  taking  their  place ; 
and  the  quotations  usually  give  the  current  price  of  each. 
London  is  so  prominent  as  the  settling-place  of  the 
world's  transactions  by  means  of  bills  drawn  on  and  by 
London  bankers,  partly  on  account  of  the  commercial  pre- 
dominance of  England,  partly  from  excellent  banking  cus- 
toms there,  and  mainly  because  an  immense  mass  of  cheap 
loanable  capital  exists  there,  which  even  foreigners  may 
borrow  at  London  rates,  provided  only  that  they  can  get 
credit  there,  that  is,  leave  to  draw  on  a  London  banker,  to 
whom  of  course  remittances  must  be  made  as  fast  as  he 
accepts  their  bills.  Besides,  the  Bank  of  England,  as  the 
principal  bank  in  Great  Britain,  and  as  closely  connected 
with  the  Government,  acts  as  a  bank  of  support  to  the 
public  and  private  Credit  of  that  country.  It  does  a  regu- 
lar business  as  a  bank  of  deposits  and  discounts,  but  it 
means  to  keep  its  rate  of  discount  somewhat  above  the 
rate  demanded  by  the  other  bankers  in  London,  so  as  not 
to  come  into  competition  with  them  much  in  their  ordi- 
nary business,  and  be  able  to  act  as  a  bank  of  support  to 
them  and  all  others  in  times  of  pressure.  All  banks  have 
about  so  much  credit  to  sell,  and  no  more  ;  most  banks  sell 
in  ordinary  times  about  all  the  credit  they  have,  because 
their  profits  depend  on  that ;  but  if  the  Bank  of  England 
did  this,  it  would  become  useless  in  periods  of  panic.  In 


316  PRINCIPLES   OF   POLITICAL   ECONOMY. 

point  of  fact,  that  Bank  just  begins  to  sell  its  reserve 
credit,  when  the  credit  of  the  bankers  below  is  exhausted. 
When  they  are  at  the  end  of  their  rope,  there  is  generally  an 
abundance  of  slack  rope  still  in  the  great  Institution  above. 

Now,  as  gold  can  be  drawn  out  of  the  Bank  of  England 
by  the  cheques  of  depositors  as  well  as  by  the  presentation 
of  its  own  notes  for  redemption,  the  Rate  of  Discount  be- 
comes a  matter  of  prime  importance  in  the  management  of 
the  Bank.  The  whole  line  of  deposits  is  a  line  of  liabilities  to 
pay  out  gold,  if  the  depositors  demand  it ;  and,  as  deposits 
come  largely  through  discounts,  whenever  there  is  a  strong 
tendency  to  draw  out  gold  so  as  to  weaken  the  reserves 
of  the  Bank,  the  directors  have  an  effectual  remedy  by 
raising  the  rate  of  discount.  The  higher  the  price  the 
Bank  charges  for  its  credit,  the  fewer,  so  far  forth,  will  be 
its  customers,  and  the  smaller  its  line  of  deposits,  and  the 
less  likely  a  continuous  drain  of  gold  from  its  vaults. 
The  Bank  of  England  is  managed  throughout  by  so  simple 
a  manner  as  the  turning  back  and  forth  of  this  magic  screw 
of  Discount. 

Besides  the  use  of  the  term  "  Par  of  Exchange  "  in  the 
broad  commercial  sense  in  which  we  have  now  been  exam- 
ining it,  as  indicating  the  substantial  equality  of  inter- 
national debts  as  between  two  countries  by  the  current 
prices  of  bills  of  exchange,  there  is  another  and  subordinate 
sense  in  which  the  phrase  is  employed,  namely,  as  denoting 
the  relative  value  of  the  coins  of  one  nation  in  the  coins  of 
another.  Thus,  our  present  gold  dollar  contains  23.22 
grains  of  pure  gold ;  the  English  pound  sterling  contains 
113.001  grains  ;  consequently,  there  are  14.8665  to  the 
English  pound ;  and  this  is  the  "  par  of  exchange  "  (in  the 
secondary  sense)  between  the  United  States  and  Great 
Britain.  Between  the  United  States  and  France  the  "  par  " 
is  $1  to  5.18  francs,  since  the  franc  is  19.29  of  our  cents. 


COMMERCIAL   CREDITS.  317 

An  English  shilling  equals  24.33  of  our  cents,  the  new 
German  "  mark  "  is  23.82  cents,  and  the  new  Scandanavian 
"  crown  "  equals  26.78  cents. 

g.  Bank  Cheques.  In  substance  indeed  and  even  in 
form,  Cheques  are  Bills  of  Exchange,  but  the  two  have 
such  differing  legal  incidents,  and  run  so  different  a  course 
towards  extinguishment,  that  for  our  purposes  in  this  trea- 
tise they  should  be  put  under  a  separate  discussion.  Bills 
of  exchange  are  expressly  drawn  "  at  sight "  or  for  a  day 
certain,  when  they  become  payable  by  the  drawee  :  cheques 
say  nothing  about  "  sight "  or  any  future  date,  though 
they  are  really  drawn  at  sight,  and  are  payable  to  bearer 
on  demand:  they  must,  therefore,  be  presented  for  pay- 
ment within  the  shortest  reasonable  time  (all  things  consid- 
ered), in  order  that  the  holder  may  legally  claim  against 
the  drawer  should  the  banker  fail  meantime :  a  cheque  is 
held  as  the  payment  of  a  debt  until  it  be  dishonored  on 
presentation:  the  banker  bears  the  risk  of  the  forgery  of 
the  drawer's  name,  unless  his  mistake  be  made  easier  by 
the  drawer's  carelessness  in  drawing:  a  cheque  is  not 
payable  after  the  drawer's  death.  The  parties  to  cheques 
are  the  Drawer,  who  is  a  depositor  with  some  banker  ;  that 
banker  thus  becomes  the  Drawee  ;  and  the  person  named  in 
the  cheque  is  the  Payee,  who  can  indorse  his  own  right  over 
to  another  person  by  name  or  in  blank  to  bearer.  When  a 
cheque  is  drawn  in  "this  way  by  one  banker  upon  another, 
it  is  usually  called  in  this  country  a  Draft. 

Formerly  in  England,  and  in  other  countries  as  well, 
each  considerable  dealer  kept  his  own  strong  box,  and 
when  he  had  occasion  to  make  payments,  told  down  the 
solid  cash  upon  his  own  counter.  Afterwards,  the  gold- 
smiths of  London  solicited  the  honor  of  keeping  in  their 
vaults  the  spare  cash  of  the  merchants,  and  these  in  their 
payments  among  each  other  came  to  employ  orders  or 


318  PRINCIPLES   OF   POLITICAL  ECONOMY. 

cheques  drawn  on  the  goldsmiths,  and  at  the  shops  of  the 
latter  the  principal  payments  in  coin  were  effected.  The 
later  introduction  of  Banks  brought  along  with  it  the  cus- 
tom, now  continually  widening  in  commercial  countries 
among  all  classes  of  the  people,  of  keeping  one's  funds 
with  some  banker,  and  making  payments  by  written  orders 
or  cheques  upon  him.  When  the  person  making  the  pay- 
ment and  the  person  receiving  it  keep  their  money  with 
the  same  banker,  there  is  no  need  of  any  money  at  all 
passing  in  the  premises,  the  sum  being  merely  transferred 
in  the  banker's  books  from  the  credit  of  the  payer  to  the 
credit  of  the  receiver.  The  banker  is  quite  willing  usually 
to  do  this  business  for  nothing,  and  even  sometimes  to 
allow  the  depositors  a  low  rate  of  interest  on  all  balances 
remaining  in  his  hands,  in  consideration  of  the  privilege 
involved  of  loaning  such  proportion  of  the  aggregate  of 
these  sums  as  he  deems  safe  to  other  parties  at  a  higher 
rate  of  interest. 

In  the  larger  cities,  by  an  arrangement  called  the 
"  Clearing-house,"  substantially  the  same  benefits  are 
secured  as  if  all  the  depositors  of  the  city  kept  their  cash 
at  the  same  bank ;  inasmuch  as  all  the  cheques  drawn  on 
each  of  the  different  banks,  and  passing  in  the  course  of 
the  business  day  into  other  banks,  are  assorted  before  even- 
ing at  all  the  banks,  and  adjusted  the  next  morning 
through  the  clearing-house,  and  the  credits  and  debits  of 
each  bank  are  set  off  as  far  as  possible  against  each  other, 
leaving  only  small  balances  to  be  settled  in  money. 

The  London  Bankers'  Clearing-house  was  established 
in  1775 ;  in  1864,  the  Bank  of  England  was  admitted  to 
it ;  and  since  then,  the  Clearing-house  itself,  and  all  the 
bankers  and  firms  using  it,  keep  accounts  with  the  Bank 
of  England,  and  the  balances,  formerly  settled  by  money, 
are  now  adjusted  by  simple  transfers  of  account  on  the 


COMMERCIAL   CREDITS.  319 

books  of  that  great  Bank.  This  carries  out  the  grand  prin- 
ciple of  .the  Clearing  further  than  it  has  yet  been  carried 
in  this  Country,  although  the  United  States  Sub-Treasury 
not  very  long  ago  joined  the  New  York  Clearing-house, 
while  the  practical  details  of  the  Clearing  are  simpler  and 
better  in  New  York  than  in  London.  The  average  clear- 
ings in  the  London  house  (and  there  are  besides  many 
other  clearing-houses  in  the  United  Kingdom)  were  £5,218- 
000,000  a  year  for  1875-80,  and  the  amounts  cleared  fre- 
quently rose  to  X  20,000,000  a  day ;  which,  if  paid  in  gold 
coin,  would  weigh'  about  157  tons  and  require  about  80 
horses  to  carry  it ;  and  if  paid  in  silver  coin  would  weigh 
more  than  2500  tons  and  require  1275  horses.  This  is 
stated  on  the  excellent  authority  of  the  late  Professor 
Jevons. 

The  total  business  of  the  23  clearing-houses  of  the  United 
States  in  1880  was  over  150,000,000,000 ;  the  New  York 
Clearing-house  did  65  %  of  that  business  for  that  year ;  and 
the  average  daily  clearings  there  for  the  fiscal  year  1879 
were  $76,167,983. 

We  will  now  describe  mainly  from  personal  observation 
the  New  York  Clearing-house,  which  was  established  in 
1853,  premising  that  the  principle  is  the  same,  though  the 
details  may  be  different,  in  all  other  clearing-houses  wher- 
ever located.  Business  men  in  New  York,  as  elsewhere, 
usually  pass  in  to  their  bankers  as  a  deposit  all  the  cheques 
and  current  credits  received  in  the  course  of  a  business 
day.  It  is  the  custom  for  everybody  to  draw  his  own 
cheque  on  his  banker  to  make  payments  with,  and  to  pass 
in  to  his  banker  the  cheques  he  receives  from  others.  Say 
there  are  sixty  clearing-banks  in  New  York  City.  Each  of 
these  banks  sorts  out  after  business  hours  every  day  all 
the  cheques  it  has  received  that  day  drawn  on  each  of  the 
other  banks  into  separate  parcels  ready  for  the  clearing  the 


320  PRINCIPLES    OF    POLITICAL   ECONOMY. 

next  morning.  Each  bank  has,  then,  fifty-nine  parcels  to 
deliver,  which  represent  the  property  of  that  bank,  and  are 
a  claim  upon  the  other  banks ;  and  also  to  receive  fifty-nine 
parcels,  which  represent  the  property  of  the  other  banks, 
and  are  a  claim  upon  itself. 

Before  ten  o'clock  in  the  morning  sixty  messengers,  each 
having  fifty-nine  parcels  to  deliver,  appear  at  the  clearing- 
house, each  reporting  to  the  manager  at  once  for  record  the 
amount  of  "  exchange  "  he  has  brought,  which  is  entered 
of  course  as  credit  to  his  bank ;  and  then  all  take  their  posi- 
tions in  order  in  front  of  the  sixty  desks,  which  occupy 
the  floor  of  the  house,  behind  which  sit  sixty  clerks,  each 
.representing  one  of  the  banks.  Each  messenger  stands 
opposite  the  desk  of  his  own  bank,  with  his  fifty-nine  par- 
cels already  arranged  in  the  exact  order  of  the  bank-desks 
before  him.  Of  course  no  messenger  has  anything  to 
deliver  to  the  clerk  of  his  own  bank.  Each  clerk  inside 
his  desk  has  a  sheet  of  paper  containing  the  names  of  all 
the  other  banks  arranged  in  the  same  order  as  the  desks, 
with  the  amounts  carried  out  upon  it  which  his  messenger 
has  just  brought  to  each.  All  these  are  entered  in  his 
credit  column.  Each  messenger  carries  also  a  slip  of  paper 
ready  to  be  delivered  with  each  parcel  to  each  clerk,  on 
which  is  entered  the  amount  of  the  cheques  he  now  brings 
to  each  bank.  Of  course  the  amount  delivered  to  each  bank 
is  debit  to  that  bank,  just  as  the  amount  brought  by  each 
is  credit  to  that  bank. 

A  signal  from  the  manager,  who  stands  on  a  raised  plat- 
form at  one  end  of  the  room  with  his  two  or  more  clerks 
before  him,  and  each  messenger  steps  forward  to  the  next 
desk  in  front  of  him,  delivers  his  parcel  and  also  the  slip 
that  goes  with  it,  which  latter  the  clerk  signs  with  his 
initials  and  hands  back  to  the  messenger  as  his  voucher 
for  the  delivery ;  and  then  each  messenger  advances  to  the 


COMMERCIAL   CREDITS.  321 

next  desk, — the  whole  cue  moving  in  order,  —  at  which 
precisely  the  same  things  take  place  as  before,  and  so  on, 
until  the  circuit  of  the  room  is  made,  and  each  comes 
opposite  again  the  desk  of  his  own  bank,  having  passed  to 
each  its  "  exchange  "  and  taken  a  receipt  for  each  delivery. 
This  process  takes  about  ten  minutes ;  when  each  clerk, 
who  had  on  his  sheet  to  start  with  the  credit  due  to  his 
bank,  has  now  the  data  (fifty-nine  items)  by  which  to  cal- 
culate the  debit  of  his  bank.  The  difference  between  the 
aggregate  of  cheques  received  and  brought  by  his  bank  is 
the  balance  due  to  or  from  the  clearing-house  as  to  that 
bank. 

All  the  clerks  report  to  the  manager  the  amounts  received 
by  each,  and  as  his  proof-sheets  hold  already  the  amounts 
brought,  if  the  two  columns  add  up  alike,  no  mistake  has 
been  made,  and  the  general  clearing  is  over.  Thirty-five 
minutes  are  allowed  the  clerks  to  enter,  report,  and  prove 
their  work.  Fines  are  imposed  for  errors  discovered  after 
that  time.  The  Clearing-house  gives  tickets  of  debit  or 
credit  to  all  the  banks,  and  the  debit  ones  must  pay  in 
lawful  money  before  half-past  one,  and  the  credit  ones  will 
get  their  due  from  the  manager  immediately  after.  The 
largest  sum  ever  cleared  in  New  York  in  one  day  was 
$206,034,920.51  on  Nov.  17, 1868,  and  the  smallest  $8,357,- 
394.82  on  Oct.  30  of  the  panic  year,  1857. 

h.  Crossed  Cheques.  About  twenty  years  ago  there 
was  instituted  in  London  what  is  called  the  Cheque-Bank, 
which  is  designed  to  bring  the  benefits  of  the  credit-system 
in  the  form  of  cheques  more  easily  to  all  classes  of  the 
people.  The  cheques  issued  by  this  institution  are  so  differ- 
ent in  character  and  in  course  from  common  bank-cheques, 
and  are  in  some  respects  so  new  in  principle,  that  we  must 
give  to  them  a  separate  heading  and  a  full  explanation. 

The  Cheque-Bank  is  a  stock  company  in  London  under 


322  PRINCIPLES    OF   POLITICAL   ECONOMY. 

that  style,  which  has  entered  into  relations  with  nearly  all 
the  banks  and  bankers  of  the  United  Kingdom,  and  with 
many  Colonial  and  foreign  banks  also,  by  which  Cheque- 
Books  are  furnished  for  sale  by  the  Cheque-Bank  through 
these  associated  banks,  which  also  agree  to  cash  the 
cheques,  every  cheque  in  which  books  indicates  by  printed 
and  indelible  perforated  notices  upon  the  forms  what  the 
utmost  sum  is  against  which  that  cheque  can  be  drawn, 
the  aggregate  of  these  perforated  sums  is  the  price  for 
which  each  book  is  sold  less  1^-  penny  for  each  cheque  in 
it,  of  which  the  penny  is  for  the  Government  stamp  re- 
quired and  the  one-fifth  for  the  profits  of  the  Cheque-Bank  j 
and  all  these  cheques  in  books  of  different  sizes  and 
amounts  are  drawn  "in  form  on  the  Cheque-Bank,  and 
Crossed,  that  is,  only  made  payable  through  a  banker.  It  is 
one  security  against  fraud  that  each  cheque  bears  on  its 
face  the  utmost  sum  for  which  it  can  be  used,  and  another 
is  that  it  can  only  be  taken  up  by  a  banker  and  thus  set- 
tled ultimately  through  the  clearing-house.  The  Crossed 
Cheques  Act  of  Parliament  in  1876  makes  any  obliteration 
of  the  crossing  or  essential  alteration  of  a  cheque  felony 
at  law. 

Cheque-crossing  is  of  two  kinds,  special  and  general; 
when  any  particular  banker's  name  is  written  between  two 
transverse  lines,  in  which  form  alone  crossed  cheques  differ 
from  ordinary  ones,  that  makes  that  cheque  payable  by 
him  only ;  when  the  words  "  and  Company  "  or  "  and  Co" 
are  written  between  these  lines,  that  makes  the  cheque 
payable  only  through  some  banker,  that  is,  the  cheque  is 
crossed  generally  ;  and  when  two  parallel  transverse  lines 
simply  are  drawn  across  the  face  of  a  cheque,  with  or 
without  the  words  "  not  negotiable,"  that  cheque  is  legally 
deemed  to  be  crossed  and  crossed  generally.  When  a 
cheque  is  uncrossed,  the  lawful  holder  may  cross  it  either 


COMMERCIAL   CREDITS.  323 

generally  or  specially ;  when  it  is  crossed  generally,  he 
may  at  his  option  cross  it  specially  ;  and  whether  crossed 
generally  or  specially  he  may  add  the  words  "  not  negotia- 
ble." All  this  facilitates  greatly  the  collection  of  cheques 
by  set-off  through  the  clearing ;  and  has  a  direct  bearing 
on  the  fortunes  of  the  Cheque-Bank. 

The  Cheque-Bank  publicly  guarantees  the  payment  of 
all  the  cheques  in  all  its  cheque-books  to  the  maximum 
amount  for  which  each  cheque  may  be  drawn ;  and  it  may 
well  do  this,  for  no  cheque-book  is  sold  except  for  money, 
and  the  money  is  ready  in  the  hands  of  some  banker  to 
pay  every  cheque  when  presented ;  any  banker  or  other 
person  will  give  cash  for  them,  or  take  them  in  payment 
for  goods  or  other  services,  or  if  they  are  drawn  for  a  sum 
larger  than  the  debt  due  will  give  back  the  charge  to  the 
bearer ;  and  if  the  cheques  be  actually  drawn  for  less  than 
the  maximum  perforated  on  them,  the  Bank  itself  will 
give  additional  cheques  for  the  balance.  The  ultimate 
payment,  then,  of  these  cheques  is  as  sure  as  anything  in 
the  future  can  be ;  the  buyer  of  a  cheque-book  knows,  that 
the  money  is  already  in  deposit  to  pay  them,  and  that  the 
government-stamps  on  them  have  already  been  paid  for, 
while  the  receiver  of  an  ordinary  cheque  cannot  know 
beforehand  that  the  drawer  has  money  in  deposit  against 
it.  Moreover,  the  holder  of  an  ordinary  cheque  must  use 
due  diligence  in  presenting  it  for  payment  as  soon  as 
possible,  or  delay  it  at  his  own  risk,  while  the  holder  of 
these  has  no  motive  whatever  for  haste,  —  time  does  not 
deteriorate  them.  All  money  received  for  cheque-books 
is  left  in  the  hands  of  the  bankers  who  sell  them,  or  trans- 
ferred to  other  bankers  in  order  to  meet  the  cheques  pre- 
sented elsewhere,  and  accordingly  an  interest  is  paid  by 
the  bankers  to  the  Cheque-Bank,  on  the  balance  of  deposits 
thus  held,  and  this  interest,  together  with  the  one-fifth  of  a 


324  PRINCIPLES   OF   POLITICAL   ECONOMY. 

t  penny  for  each  cheque,  is  the  only  source  of  profit  to  the 
Cheque-Bank.  Of  course,  the  longer  these  cheques 
remain  out  before  presentation,  the  more  profitable  to  the 
Cheque-Bank;  and  their  average  length  of  life  has  been 
heretofore  not  far  from  ten  days. 

Since  these  cheques  are  crossed  generally  (not  specially) 
with  the  words  "  and  Co.,"  that  is  to  say,  since  they  can 
ultimately  be  taken  up  only  by  some  banker,  they  have  a 
more  generalized  character  than  common  bank-cheques, 
they  are  safer  to  carry  and  keep  than  so  much  money 
would  be,  there  is  no  difficulty  in  shopping  or  paying 
wages  by  means  of  them,  they  are  very  much  the  same  in 
their  nature  as  bank  bills  are,  and  might  easily  in  certain 
circumstances  become  money  just  as  bank  bills  in  some 
circumstances  are  money.  Each  of  the  associated  banks 
keeps  an  account  of  course  with  the  Cheque-Bank,  but  is 
not  obliged  to  keep  a  separate  account  with  the  purchasers 
of  cheque-books,  which  is  a  great  relief  to  the  banks.  In 
this  way  the  Cheque-Bank  extends  the  use  of  cheques  in 
the  lieu  of  money  to  a  great  multitude  of  small  transac- 
tions, and  relieves  the  other  banks  from  what  would 
otherwise  be  a  great  deal  of  troublesome  accounting  and 
collection.  The  ingenuity  and  the  utility  of  this  compar- 
atively new  form  of  Credit  cannot  be  questioned  for  one 
moment;  the  promoters  of  the  Bank  intended  that  their 
cheques  should  be  received  by  the  people  as  a  substitute 
for  cash  and  for  Post  Office  orders,  and  such  has  been  the 
effect,  many  railway  and  other  companies  having  long  ago 
agreed  to  receive  them  as  cash,  and  the  people  generally 
regard  them  as  cheaper  and  more  convenient  than  postal 
orders  and  even  for  many  purposes  than  cash. 

i.  Cash  Credits.  As  the  Cheque-Bank  in  the  sense  as 
just  explained  has  been  thus  far  in  the  history  of  Credit 
peculiar  to  England,  so  we  have  now  to  look  to  Scotland 


COMMERCIAL   CREDITS.  325 

only  for  an  exemplification  of  a  form  of  Credit  hitherto 
confined  to  that  country.  It  is  a  national  characteristic  of 
the  Scotch  to  be  "  canny,"  that  is,  they  can,  a  word  from 
the  old  Teutonic  konnen,  to  be  able ;  and,  as  a  consequence, 
Scotch  Banking  has  long  been  famous  the  world  over ;  and 
the  one  peculiarity  of  it,  with  which  we  are  now  concerned, 
goes  back  certainly  to  1729,  as  we  happen  to  know  from  a 
minute  of  the  Directors  of  the  Bank  of  Scotland  under 
that  date.  That  bank  was  chartered  by  the  old  Scotch 
Parliament  in  1695,  one  year  after  the  chartering  by  the 
English  Parliament  of  the  Bank  of  England,  and  under 
substantially  the  same  title  as  that,  namely,  "  The  Governor 
and  Company  of  the  Bank  of  Scotland."  It  began  to 
establish  branches  in  different  towns  of  the  realm  in  1696, 
and  began  to  issue  bank  notes  for  <£!  (a  privilege  denied 
to  the  Bank  of  England)  in  1704 ;  and  it  began  also  at  a 
very  early  period  to  exhibit  the  two  main  peculiarities  of 
Scotch  banking,  namely,  (1)  to  receive  deposits  on  interest 
and  (2)  to  grant  credit  on  cash  accounts,  or,  as  they  have 
come  to  be  called  less  properly,  Cash  Credits. 

This  second  peculiarity,  which  has  proved  extremely 
beneficial  to  Scotland,  is  for  substance  this,  to  create  a 
drawing  account  in  favor  of  a  deserving  customer,  who  has 
made  as  yet  no  deposits  in  the  bank,  but  who  draws  out 
money  and  pays  it  in  from  time  to  time  just  like  an  ordi- 
nary depositor,  and  instead  of  receiving  interest  on  the  daily 
balance  to  his  credit  (old  Scotch  fashion),  he  pays  interest 
on  the  daily  balance  to  his  debit.  These  accounts  are  called 
Cash  Credits.  They  are  not  intended  to  be  dead  loans,  but 
quick  accounts  ;  and  they  are  not  granted  except  to  persons 
in  business,  or  to  those  who  are  frequently  drawing  out 
and  paying  in  money.  The  individual  who  has  obtained 
such  a  credit  is  enabled  to  draw  the  whole  sum,  or  any 
part  of  it,  when  he  pleases,  replacing  it,  or  portions  of  it, 


326  PRINCIPLES    OF   POLITICAL   ECONOMY. 

when  he  pleases,  according  as  he  finds  it  convenient,  inter- 
est being  charged  only  upon  such  part  as  he  draws  out. 

David  Hume  in  his  Essay  of  the  Balance  of  Trade, 
published  in  1752,  makes  this  nice  point  in  favor  of  Cash 
Credits:  "If  a  man  borrows  X5000  from  a  private  hand, 
besides  that  it  is  not  always  to  be  fouud  when  required,  he 
pays  interest  for  it  whether  he  be  using  it  or  not.  On  the 
other  hand,  his  Cash  Credit  costs  him  nothing,  except 
during  the  moment  it  is  of  service  to  him;  and  this  circum- 
stance is  of  equal  advantage  as  if  he  had  borrowed  money 
at  a  much  lower  rate  of  interest."  The  Cash  Credit  is 
always  for  a  limited  sum,  seldom  under  £100,  given  upon 
the  customer's  own  security,  and  that  in  addition  of  two 
or  three  individuals  approved  by  the  bank,  who  become 
sureties  for  its  payment.  Of  course,  only  those  banks  can 
furnish  such  credits  which  possess  a  surplus  of  credit  more 
than  they  can  sell  in  the  ordinary  way,  and  these  credits 
are  safe  and  useful  only  in  small  communities,  in  which 
men  are  well  known  to  each  other.  Some  friends  of 
the  parties  thus  accommodated  always  guarantee  the  bank 
against  loss ;  but  the  losses  have  proved  to  be  insignificant, 
the  gains  to  be  marvellous ;  and  this  form  of  credit  issued 
on  the  basis  of  no  previous  transaction  in  the  way  of 
deposits  illustrates  better  than  any  other  the  radical  prin- 
ciple, that  Credit  is  Capital. 

The  Report  of  a  Committee  of  the  House  of  Lords  made 
in  1826  on  Scotch  and  Irish  banking  describes  very  clearly 
and  fully  the  system  of  Cash  Credits :  "  There  is  also  one 
part  of  their  system,  which  is  stated  by  all  the  witnesses  to 
have  had  the  best  effects  upon  the  people  of  Scotland,  and 
particularly  upon  the  middling  and  poorer  classes  of  soci- 
ety, in  producing  and  encouraging  habits  of  frugality  and 
industry.  The  practice  referred  to  is  that  of  Cash  Credits. 
Any  person  who  applies  to  a  bank  for  a  Cash  Credit  is  called 


COMMERCIAL   CREDITS.  327 

upon  to  produce  two  or  more  competent  sureties,  who  are 
jointly  bound;  and  after  a  full  inquiry  into  the  character 
of  the  applicant,  the  nature  of  his  business,  and  the  suffi- 
ciency of  his  securities,  he  is  allowed  to  open  a  credit,  and 
to  draw  upon  the  bank  for  the  whole  of  its  amount,  or  for 
such  part  of  it  as  his  daily  transactions  may  require.  To 
the  credit  of  the  account  he  pays  in  such  sums  as  he  may 
not  have  occasion  to  use,  and  interest  is  charged  or  cred- 
ited upon  the  daily  balance,  as  the  case  may  be.  From 
the  facility  which  these  Cash  Credits  give  to  all  the  small 
transactions  of  the  country,  and  from  the  opportunities 
which  they  afford  to  persons  who  begin  business  with  little 
or  no  capital  but  their  character  to  employ  profitably  the 
minutest  products  of  their  industry,  it  cannot  be  doubted 
that  the  most  important  advantages  are  derived  to  the 
whole  community.  The  advantage  to  the  banks  that  give 
these  Cash  Credits  arises  from  the  call  which  they  contin- 
ually produce  for  the  issue  of  their  paper,  and  from  the 
opportunity  which  they  afford  for  the  profitable  employ- 
ment of  part  of  their  deposits.  The  banks  are  indeed  so 
sensible  that,  in  order  to  make  this  part  of  their  business 
advantageous  and  secure,  it  is  necessary  that  their  Cash 
Credits  should  be  operated  upon,  that  they  refuse  to  con- 
tinue them  unless  this  implied  condition  be  fulfilled.  The 
total  amount  of  their  Cash  Credits  is  stated  by  one  witness 
to  be  X 5,000,000,  of  which  the  average  amount  advanced 
by  the  banks  may  be  one-third." 

There  are  only  ten  Banks  doing  business  in  Scotland, 
and  the  Bank  of  Scotland,  the  oldest  of  these,  had  86 
branches  in  1875,  and  the  average  number  of  branches  of 
the  other  nine  is  very  nearly  the  same  with  that. 

j.  Circular  Credits.  These  are  a  device  of  bankers  to 
enable  travellers  and  merchants  of  one  country  to  obtain 
credit  and  cash  in  foreign  countries  in  sums  to  suit  their 


328  PRINCIPLES    OF   POLITICAL   ECONOMY. 

convenience,  not  to  exceed  in  the  aggregate  the  limit 
mentioned  in  the  credits  drawn.  These  credits  assume 
different  forms  and  are  called  b}7  different  names,  but  they 
are  all  at  bottom  foreign  Bills  of  Exchange.  They  are 
Orders  to  pay.  They  are  drawn  by  Bankers  at  home  upon 
Bankers  abroad.  They  are  bought  by  travellers  and 
others,  because  they  are  safer  to  carry  than  so  much  money 
would  be,  and  much  more  convenient.  In  nearly  all  of 
those  forms  the  credits  are  available  for  no  one  else  than  the 
payee,  whose  name  is  upon  the  form  as  well  as  the  names 
of  the  bankers  who  are  the  drawees,  and  so  the  credits  are 
not  liable  to  be  stolen,  although  they  may  be  temporarily 
(not  ultimately)  lost.  Purchasers  of  such  credits  can 
obtain  money  on  them  in  all  of  the  principal  cities  of  the 
world  in  just  such  sums  as  they  need.  They  have  ulti- 
mately to  pay  for  no  more  credit  than  they  actually  use, 
because  the  drawer  will  pay  back  to  the  payee,  in  case  he 
has  bought  and  paid  for  the  entire  credit  drawn,  the  cash 
difference  ;  while  on  the  other  hand,  arrangements  can 
always  be  made  beforehand,  by  which  money  need  not  be 
deposited  with  the  banker  at  home  any  faster  than  it  is 
actually  called  for  abroad ;  and  while  also  a  good  customer 
of  the  bank  drawing  the  credit,  one  who  keeps  ordinarily  a 
good  line  of  deposits,  may  pay  for  whatever  credit  he  has 
used  when  he  returns  from  his  trip. 

There  is  one  kind  of  these  foreign  credits  that  deserves 
separate  mention,  since  it  has  come  of  late  years  into  quite 
general  use,  namely,  "  Circular  Notes,"  as  they  are  called. 
These  are  sight  bills  of  exchange,  each  drawn  for  a  rela- 
tively small  amount,  say  <£!(),  and  multiplied  in  number  to 
the  requirements  of  the  buyer,  and  drawn  by  one  domestic 
banking-house,  say  Kountze  Brothers  of  New  York,  on  one 
foreign  banking-house,  say  Union  Bank  of  London,  the 
names  of  drawer  and  drawee  only  being  upon  the  "  notes," 


COMMERCIAL   CREDITS.  329 

the  payee  or  buyer  being  expected  to  indorse  each  note  in 
the  presence  of  the  Correspondent  making  the  payment. 
The  notes,  therefore,  are  not  negotiable  except  by  the 
signature  of  the  payee  himself  from  time  to  time  as  he 
needs  the  proceeds.  This  makes  them  safer  than  so  much 
money  *to  carry :  if  stolen,  they  could  do  the  thief  no 
possible  good.  At  the  same  time  the  drawer  of  the  notes 
furnishes  the  payee  a  circular  letter  addressed  to  his  bank- 
ing correspondents  all  over  the  world,  just  as  in  an  ordinary 
Letter  of  Credit,  containing  the  name  and  also  the  personal 
signature  of  the  payee,  but  unlike  the  ordinary  Letter 
making  no  reference  to  the  amounts  of  credit  furnished, 
and  there  are  no  indorsements  of  any  hind  by  the  corre- 
spondents on  this  circular  letter,  which  the  payee  is 
cautioned  in  print  on  the  back  to  keep  separate  from  the 
Circular  Notes  covered  by  it.  One  of  these  letters  runs  as 
follows,  the  name  of  the  payee  being  entered  in  manuscript 
and  also  in  autograph :  — 

"  To  OUR  CORRESPONDENTS, 
GENTLEMEN, 

THIS  LETTER  WILL  BE  PRESENTED  TO  YOU  BY 
GRACE  PERRY,  WHO  is  RECOMMENDED  TO  YOUR  KIND  ATTEN- 
TION, AND  IS  SUPPLIED  WITH  OUR  CIRCULAR  NOTES,  THE 

VALUE  OF  WHICH  PLEASE  FURNISH  AT  THE  CURRENT  RATE  FOR 
SIGHT  BILLS  ON  LONDON,  WITHOUT  ANY  EXPENSE  TO  US. 
AFTER  YOU  HAVE  EXAMINED  THIS  LETTER,  PLEASE  RETURN  IT 
TO  THE  BEARER,  IN  WHOSE  HANDS  IT  WILL  REMAIN  UNTIL  THE 
EXPIRATION  OF  THE  CIRCULAR  NOTES." 

These  Circular  Notes  approximate  in  certain  respects  in 
kind  towards  the  cheques  of  the  Cheque-Bank  of  London  : 
both  are  bought  at  the  outset  and  paid  for  in  full  on  the 
spot;  and  both  are  drawn  upon  one  Bank,  which  is  the  ulti- 
mate Drawee  and  Payer.  In  two  essential  respects,  how- 


330  PRINCIPLES   OF   POLITICAL   ECONOMY. 

ever,  the  notes  differ  from  the  cheques :  the  cheques  are 
payable  to  Bearer  without  any  indorsement  by  anybody, 
and  so  have  a  much  more  generalized  purchasing-power 
than  the  notes,  which  have  to  be  indorsed  by  the  payee 
(not  named  indeed  in  the  notes  but  in  the  letter  accompa- 
nying them),  as  they  are  negotiated  in  a  way  preliminary  to 
their  ultimate  payment  by  the  single  bank  on  which  they 
are  drawn ;  and  also  the  notes,  like  all  other  foreign  bills 
of  exchange,  are  subject  in  their  value  to  the  fluctuations 
of  International  Exchange,  while  the  cheques  in  their 
value  are  independent  of  commercial  exchanges  "in  favor" 
or  "against"  any  country,  and  entitle  the  bearer  to  so 
many  pounds  sterling  in  value  according  to  English  coin- 
age without  any  possible  discount  or  premium.  These 
London  Cheques,  accordingly,  approach  much  nearer  to 
the  character  of  Money  than  any  other  form  of  Credit  yet 
devised,  except  Bank  bills  undoubtedly  convertible ;  and 
already  take  their  place  as  one  of  the  media  in  the  interna- 
tional trade,  and  are  sold  in  New  York  by  authorized 
agents  of  the  Cheque-Bank,  as  they  have  long  been  by 
such  agents  in  all  English  and  Colonial  and  in  many  for- 
eign cities. 

These  Ten  are  the  principle  instruments  in  Credit- 
Exchanges  throughout  the  world;  and  we  pass  now,  as 
proposed,  to  the  next  section  of  our  subject,  namely,  the 
Advantages  of  Credit. 

3.  As  introducing  these  advantages  and  also  as  illustra- 
ting them,  we  call  attention  first  to  the  antiquity  of  many 
of  the  forms  of  Credit,  a  point  upon  which  much  fresh 
light  has  been  cast  by  recent  discoveries  in,  and  ability  to 
decipher  the  cuneiform  writing  of,  the  ancient  Assyria  and 
Babylonia.  It  is  to  the  credit  of  Credit,  that  the  earliest 
of  civilized  men  seem  to  have  perceived  its  nature,  to  have 
seized  upon  its  powers,  and  to  have  realized  for  themselves 


COMMERCIAL   CREDITS.  331 

some  of  its  advantages.  Credit  is  natural  and  legitimate. 
The  moderns  have  invented  new  forms  of  it,  and  have 
tested  its  capacities  to  the  utmost,  but  the  ancients  know 
it  well  in  several  of  its  instruments,  and  vindicate  their 
own  insight  into  the  recesses  of  Exchanges  by  tablets  and 
documents  now  known  and  read  of  all  men. 

In  an  earthernware  jar  found  some  years  ago  in  the 
neighborhood  of  Hillah,  a  few  miles  from  Babylon,  were 
discovered  many  clay  tablets  inscribed  with  records  relat- 
ing to  banking,  and,  what  is  more,  to  banking  as  carried 
on  for  generations  by  a  single  family  or  firm,  which  the 
cuneiform  archaeologists  have  translated  as  "  Egibi  &  Co." 
These  tablets  are  now  deposited  in  the  British  Museum. 
Those  who  can  read  them  say,  that  the  founder  of  this 
banking-house,  Egibi,  probably  lived  in  the  reign  of  Sen- 
nacherib, about  700  B.C.  This  family  has  been  traced  in 
banking  transactions  during  a  century  and  a  half,  and 
through  five  generations  down  to  the  reign  of  Darius. 
They  were  the  Rothschilds  in  the  region  of  the  Euphrates  : 
they  acted  in  a  sort  as  the  national  bank  of  Babylon. 

The  Tigris  is  always  associated  with  the  Euphrates  and 
forever  will  be.  Nineveh  on  the  former  river,  like  Baby- 
lon on  the  latter,  has  yielded  from  its  tablet-records  infor- 
mation as  to  the  use  of  credit  in  the  more  northern  capital 
of  Assyria.  "  Within  the  palace  of  Asshur-bani-pal,  the 
Sardanapalus  of  the  Greeks,  who  reigned  at  Nineveh  from 
668  B.C.,  Layard  discovered  what  is  known  as  the  Royal 
Library.  There  were  two  chambers,  the  floors  of  which 
were  heaped  with  books,  like  the  Chaldean  tablets  already 
described.  The  number  of  books  in  the  collection  has 
been  estimated  at  ten  thousand.  The  writing  upon  some 
of  the  tablets  is  so  minute  that  it  cannot  be  read  without 
the  aid  of  a  magnify  ing-glass.  We  learn  from  the  inscrip- 
tions that  a  librarian  had  charge  of  the  collection.  Cata- 


332  PRINCIPLES    OF   POLITICAL   ECONOMY. 

logues  of  the  books  have  been  found,  made  out  on  clay 
tablets.  The  library  was  open  to  the  public,  for  an  inscrip- 
tion of  Asshur-bani-pal  says,  "  /  wrote  upon  the  tablets  ;  I 
place  them  in  my  palace  for  the  instruction  of  my  people ." 
The  Assyrian  tablets  embrace  a  great  variety  of  subjects ; 
the  larger  part,  however,  are  lexicons  and  treatises  on 
grammar,  and  various  other  works  intended  as  text-books 
for  scholars.  Perhaps  the  most  curious  of  the  tablets  yet 
found  are  notes  issued  by  the  Government,  and  made  re- 
deemable in  gold  and  silver  on  presentation  at  the  King's 
treasury.  Tablets  of  this  character  have  been  found  bear- 
ing date  as  early  as  625  B.C.  It  would  seem  from  this 
that  the  Assyrians  had  very  correct  notions  of  the  promise- 
character  of  paper  (tablet)  money"  (Myers). 

In  the  Metropolitan  Museum  of  Art  in  New  York  are 
Babylonian  tablets  bearing  distinct  records  of  credit  trans- 
actions that  took  place  in  the  reign  of  Nebuchadnezzar. 
The  earliest  tablet  is  of  the  year  601  B.C.  On  it  are  mem- 
oranda of  loans  of  silver  made  by  Kurdurru  as  follows: 
"  1  mina  of  silver  to  Suta,  1  mina  to  Balludh,  |-  mina  to 
Buluepus,  5  shekels  to  Nabu-basa-napsate,  and  5  shekels  to 
Nergal-dann  ,  —  total,  3  minas,  5  shekels  of  silver."  There 
are  more  than  50  similar  tablets  in  this  collection ;  the 
latest  dated,  "  Babylon,  18th  day  of  14th  year  of  Darius," 
that  is,  B.C.  505.  M.  Lenormant,  who  can  read  them, 
divides  these  credit  documents  into  five  principal  types. 
1.  Simple  obligations ;  2.  Obligations  with  a  penal  clause 
in  case  of  non-fulfilment,  3.  Obligations  with  the  guar- 
antee to  a  third  party ;  4.  Obligations  payable  to  a  third 
person ;  and  .5.  Drafts  drawn  upon  one  place,  payable  in 
another.  These  last  are  letters  of  Credit.  They  contain 
the  names  of  several  witnesses.  They  are  evidently  nego- 
tiable, but  from  the  nature  of  things  could  not  pass  by 
indorsement,  because  when  the  clay  was  once  baked 


COMMERCIAL   CREDITS.  833 

nothing  new  could  be  added,  and  under  these  circum- 
stances the  name  of  the  payee  was  often  omitted.  It  seems 
to  follow  from  this  peculiarity,  that  the  drawee  must  have 
been  regularly  advised  by  the  drawer.  One  of  the  credits 
in  this  most  interesting  collection  had  79  days  to  run. 

The  main  elements  of  their  civilization  came  to  the 
Greeks,  and  especially  to  the  Greek  cities  in  Asia  Minor 
demonstrably  from  the  Eastward  ;  the  Greek  West  proved 
itself  quick  to  catch  up  the  thoughts  and  the  modes  of  the 
East ;  accordingly,  Isocrates  in  his  plea  against  the  banker, 
Pasion,  describes  a  formal  bill  of  Exchange  bought  by 
Stratocles  in  Athens,  payable  in  Pontus,  and  guaranteed 
principal  and  interest  by  Pasion ;  the  practical  Romans 
were  pupils  of  the  Greeks  in  all  such  matters,  and  so 
it  came  about  in  course  of  time,  that  Cicero  wrote  as  fol- 
lows in  a  letter  to  Atticus,  —  "  Let  me  know,  if  the  money 
my  son  needs  at  Athens  can  be  sent  him  byway  of  exchange, 
or  if  it  be  necessary  for  it  to  be  taken  to  him, — permu- 
tarine  possit  an  ipsi  ferendum  sit";  and  after  that  the 
Jews  and  the  Lombards  carried  the  Letter  of  Credit  all 
over  the  world. 

It  goes  without  saying,  when  the  most  civilized  and 
advanced  people  of  the  world  were  the  first  to  adopt  and 
have  been  since  the  quickest  to  expand  the  use  of  Credit, 
that  there  must  be  pretty  obvious  and  very  solid  advan- 
tages from  such  use  and  expansion ;  and  we  must  now  note 
and  weigh  a  few  of  these  advantages. 

(1)  There  are  young  men  in  every  advanced  community 
in  the  world  who  have  integrity  and  industry  and  skill, 
but  little  or  no  Capital ;  and  when  such  men  are  enabled 
to  borrow  money,  as  by  the  Scotch  system  of  "cash  ac- 
counts "  or  otherwise,  to  start  themselves  in  business  or  to 
enlarge  a  business  already  in  successful  operation,  the  gen- 
eral interests  of  Production  as  well  as  their  own  personal 


334  PRINCIPLES    OF   POLITICAL   ECONOMY. 

interests,  are  greatly  subserved  by  such  credit;  because 
in  all  probability  much  capital  thus  passes  out  of  hands 
which  are  less  into  hands  which  are  more  able  to  use  it  pro- 
ductively. Those  who  are  best  able  to  make  capital  tell  by 
increase  are  generally  those  who  are  most  desirous  to  obtain 
it,  and  frequently  those  who  can  offer  the  best  security  for 
its  replacement.  Nothing,  therefore,  is  to  be  said  against, 
but  everything  in  favor  of,  such  a  loaning  of  capital  as 
shall  bring  it  under  safe  conditions  from  the  hands  of  the 
idle  and  the  aged,  from  those  indisposed  or  incompetent 
to  use  it  productively,  into  other  hands  at  once  competent 
and  honest.  Such  credits  as  these  are  a  benefit  and  only  a 
benefit  to  all  the  parties  concerned,  and  to  Society  at  large. 
The  active  operators  retain  something  of  profit  after  replac- 
ing the  capital  with  current  interest  upon  it ;  the  lenders 
receive  more  than  if  their  capital  remained  idle,  or  they 
employed  it  themselves ;  and  Society  is  benefited  by  a  more 
complete  development,  and  rapid  circulation,  of  Services. 
Despite  all  the  instances  of  broken  faith,  it  is  still  an  honor 
to  human  nature,  that  men  do  so  gain  by  good  character 
the  confidence  of  their  fellows,  that  they  are  and  ought  to 
be  trusted  with  capital  on  their  simple  word  or  note  ;  and 
it  is  the  glory  of  free  political  institutions,  that  under  their 
influence  more  than  elsewhere,  young  men  do  rise  by  the 
help  of  so  slight  a  stepping-stone  as  this,  in  crowds,  to  the 
high  places  of  opulence. 

In  the  important  point  of  view,  that  thus  all  of  the 
available  capital  of  a  community  is  brought  out  into  pro- 
ductive activity,  too  much  can  scarcely  be  said  of  Savings- 
Banks,  which  take  the  surplus  earnings  of  the  poor,  and 
not  only  keep  them  safely,  but  pay  a  fair  interest  on  each 
deposit,  and  loan  the  aggregate  at  a  higher  rate  on  choice 
securities,  thus  stimulating  frugality  in  a  wide  circle  of 
depositors,  and  at  the  same  time  aiding  Production  by  oppor- 


COMMERCIAL   CREDITS.  335 

tune  loans  to  the  best  class  of  borrowers.  In  the  year 
1881,  there  were  1443,000,000  invested  in  savings-banks 
in  the  State  of  New  York,  and  1230,000,000  in  the  small 
State  of  Massachusetts. 

In  this  first  category  of  the  advantages  of  Credit,  come 
also  the  ordinary  bank  discounts,  made  for  short  periods 
only,  holding  the  debtor  to  the  strictest  rules  of  payment, 
only  professing  and  only  enabled  to  help  customers  over 
the  transient  hard  places  in  their  business,  and  not  to  fur- 
nish the  funds  on  which  the  business  is  mainly  conducted. 
Loans  drawn  from  the  banks  on  interest  should  never  be 
put  into  the  form  of  fixed  capital,  and  should  only  be  a 
part  of  the  quick  or  circulating  capital,  since  only  the 
passing  necessities  of  a  business  having  an  independent 
basis  and  movement  of  its  own,  can  safely  be  met  by  bank 
discounts.  The  cash  credits  of  Scotland  are  quite  different 
both  in  what  they  are  and  in  what  they  imply  from  the 
short  and  sharp  discounts  of  the  banks  of  our  own  country. 

So  far  as  the  capital  stock  of  banks  is  made  up,  as  it 
usually  is,  of  a  large  number  of  comparatively  small  sub- 
scriptions, there  is  the  great  advantage  just  spoken  of,  of 
calling  a  multitude  of  otherwise  idle  sums  into  activity  in 
production ;  and  so  far  as  no  undue  privileges,  unjust  to 
other  corporations  and  individuals,  are  accorded  to  banks 
by  law,  there  is  no  branch  of  industry  more  legitimate  and 
beneficial  than  banking.  It  is  no  essential  part  of  the 
functions  of  a  bank,  that  it  manufacture  and  issue  paper 
money ;  that  feature  is  always  rather  a  source  of  weakness 
than  a  ground  of  strength ;  the  money  the  bank  circulates 
should  always  be  the  national  money ;  and  if  that  too,  un- 
fortunately, should  be  credit-money,  the  element  of  credit 
in  the  money  should  be  sharply  discriminated  in  the  public 
mind  from  that  other  and  quite  different  element  of  credit 
by  which  the  bank  loans  it  to  its  customers. 


336  PRINCIPLES   OF   POLITICAL   ECONOMY. 

(2)  There  is  another  class  of  advantages  in  Credit, 
which  do  not  depend  so  much  on  the  transfer  of  Capital 
from  less  to  more  productive  hands,  as  on  the  facilities 
which  credit  affords  in  economizing  the  general  operations 
of  Exchange.  Here  the  advantages  are  derived  from  the 
convenience  of  settling  accounts  arising  out  of  exchanges, 
rather  than  from  the  character  of  the  exchanges  themselves. 
Look  a  moment,  for  example,  at  foreign  Bills  of  Exchange. 
They  serve  to  settle  up  the  accounts  arising  from  the  Com- 
merce of  two  or  six  Continents,  with  but  little  transmission 
of  money  from  any,  and  with  but  very  little  loss  of  time. 
Commercial  bills  drawn  in  New  York  on  London  have  been 
usually  payable  at  sixty  days'  sight;  the  New  York  mer- 
chant despatching  a  ship  is  able  to  realize  at  once  the  value 
of  her  cargo,  minus  interest  for  the  time  his  bill  has  to 
run ;  since  bankers'  bills  have  so  largely  taken  the  place 
of  "  commercial "  bills,  the  time  is  much  shortened  thereby, 
and  this  is  one  reason  why  bankers'  bills  bear  a  higher 
price  in  the  market ;  the  merchant  or  sender  is  indeed  still 
liable  in  part  to  see  that  his  bill  is  ultimately  paid  by  the 
drawee ;  but  the  commercial  integrity  of  the  leading  houses 
and  leading  banks  in  all  countries  is  with  justice  so  firmly 
believed  in  and  acted  on,  that  on  the  whole  but  little 
anxiety  springs  from  this  source.  It  is  one  of  the  noble 
things  in  international  commerce,  that  men  trust  each 
other  across  the  oceans,  and  lay  millions  of  value  on  the 
faith  of  a  single  firm. 

Inland  bills  of  exchange  equally  facilitate  settlements 
within  the  country  itself ;  and  cheques,  which  are  of  the 
same  essential  nature  as  inland  bills,  contribute  to  the  same 
end  even  more  simply  and  surely,  passing  readily  in  pay- 
ments wherever  the  parties  are  known,  and  through  credit 
and  set-off  doing  the  work  of  money  more  conveniently 
and  economically  than,  and  within  certain  limits  just  as 


COMMERCIAL   CREDITS.  337 

safely  as,  money  itself  could  do  it.  The  face  of  a  cheque 
drawn  to  the  amount  of  his  deposit  in  favor  of  another 
depositor  in  the  same  bank  is  transferred  in  the  banker's 
books  from  the  credit  of  the  drawer  to  that  of  the  payee 
by  the  stroke  of  a  pen,  no  money  at  all  passes  in  the 
premises,  while  the  banker  is  released  from  one  debt  by 
creating  another  of  equal  amount,  the  drawer  is  released 
from  one  debt  by  another  to  be  transferred  to  the  payee, 
and  the  payee  is  paid  by  the  drawer  by  the  former's  receipt 
of  another  debt  more  acceptable  to  him. 

(3)  Besides  the  two  essential  functions  of  all  banks, 
namely,  the  receiving  of  deposits  and  the  discounting  of 
bills,  most  of  them  perform  a  variety  of  other  legitimate 
operations  in  Credit,  which  must  be  classed  among  the 
advantages   of  Credit.     They  buy  and  sell  debts  of  all 
sorts.     They  make  collection  of  debts  for  their  customers. 
They  sell  their  own  drafts  on  distant  places.     Since  1863, 
our   national   banks   have   done   an  immense  business  in 
handling  the  debt  of  the  United  States :  they  were  instru- 
mental in  diffusing  the  national  bonds  among  all  classes  of 
the  people :  they  collect  for  their  customers  the  coupons  at 
maturity :  they  have  been  and  still  are  the  factors  of  the 
government   in  exchanging,  for  those  who  desire  it,  one 
species  of  bond  for  another;  and  the  entire  debt  of  the 
United   States   has  been   several   times   changed,  mainly 
through  the  agency  of  the  banks,  from  bonds  at  high  rates 
of  interest  and  for  short  times  of  maturity  to  bonds  at 
lower  rates  and  for  longer  times. 

(4)  The  fourth,  and  probably  the  chief,  advantage  of 
Credit  is  the  fact,  that  a  new  purchasing-power  is  created 
by  means  of  it,  a  new  Valuable,  something  additional  to 
all  existing  before  in  the  world  of  Values.     One  can  buy 
other  things  with  Credit,  as  well  as  with  material  Com- 
modities and  personal  Services.    Credit,  therefore,  becomes 


338  PRINCIPLES    OF    POLITICAL    ECONOMY. 

a  Salable  under  the  two  peculiar  limitations  already  ex- 
plained, those  of  future  Time  and  personal  Confidence,  just 
as  Commodities  become  a  Salable  under  the  peculiar  limi- 
tations belonging  to  them  ;  and,  what  is  more  to  the  present 
purpose,  just  as  some  Commodities  (all  of  them  salable) 
become  Capital  under  the  action  of  the  abstinence  of  their 
owners,  so  some  Credits  (all  of  them  salable)  become  Cap- 
ital under  the  action  of  the  Abstinence  of  their  owners. 
Some  commodities  and  some  credits  are  expended,  that  is, 
sold,  for  the  immediate  gratification  of  their  owners,  with- 
out ever  a  thought  of  a  future  increase  to  accrue ;  but  also, 
some  commodities  and  credits  are  reserved  by  their  owners 
for  use  in  further  production,  that  is,  for  future  buying  and 
selling ;  and  the  motive  in  all  such  cases  is  the  same  that 
creates  all  Capital  everywhere,  namely,  the  increase  to 
accrue  as  the  result  of  such  abstinence ;  and,  consequently, 
we  lay  down  the  postulate  with  all  confidence,  and  enu- 
merate it  as  one  of  the  main  advantages  of  Credit,  that 
some  Credits  are  CAPITAL,  with  all  the  powers  in  produc- 
tion of  that  potent  agent  already  exemplified. 

It  is  only  fair  to  apprise  the  reader  right  here,  that 
almost  all  Economists  deny  that  any  new  capital  is  created 
through  Credit.  These  deny  in  toto  that  the  relation  of 
debtor  and  creditor  involves  anything  more  than  the  ex- 
change between  the  two  parties  of  certain  titles  to  tangible 
goods.  Let  the  reader  now  hear,  and  then  judge  for  him- 
self. Bonamy  Price  of  Oxford  University,  a  professed 
Economist  and  a  teacher  of  acknowledged  ability,  writes 
as  follows : a  "  Omitting  the  capital  which  a  joint  stock  com- 
pany puts  into  a  bank,  the  banker  possesses  no  capital,  except 
his  premises  and  any  coin  that  may  be  in  them,  however 
much  commercial  and  monetary  literature  may  ascribe  capi- 
tal to  banks.  Lines  and  names  in  ledgers,  cheques  at  the 
1  Practical  Political  Economy,  1877,  p.  452. 


COMMERCIAL   CREDITS.  339 

Clearing-house,  debts  due  to  depositors,  debts  due  upon  bills 
by  borrowers,  are  neither  wealth  nor  capital.  They  are  words 
and  nothing  more.  Incorporeal  property,  under  which  these 
kinds  of  written  words  are  summed  up,  is  not  wealth  ;  it  is 
merely  a  collection  of  title-deeds,  but  from  which  the  reality 
is  absent.  The  corpus  is  not  in  those  deeds,  but  the  right  to 
acquire  that  property,  even  before  possession  is  obtained,  is 
itself  a  property.  If  a  title-deed  or  a  mortgage  is  declared 
to  be  actual  wealth  by  Political  Economy,  then  the  sooner  it 
is  consigned  to  the  waste-basket,  the  better" 

This  passage  shows  how  the  word,  "wealth,"  tangles 
men  up  inextricably,  who,  by  discarding  it  utterly,  might 
have  become  clear  thinkers  and  useful  expositors.  It  also 
shows,  that  Professor  Price  never  analyzed  Valuables  into 
their  three  kinds,  never  thoroughly  mastered  in  a  prelimi- 
nary way  the  Idea  that  underlies  Economics,  never  precisely 
understood  what  Money  is,  and  certainly  never  found  out 
the  radical  nature  of  Credit.  Nevertheless,  the  passage  just 
quoted  really  concedes  the  whole  matter  in  the  present  dis- 
pute,—  "the  right  to  acquire  that  property,  even  before 
possession  is  obtained,  is  itself  a  property,"  —  that  is  all  that 
we  claim,  namely,  that  rights  are  property,  and  that  new 
rights  (which  are  property)  are  created  by  Credit,  and  that 
some  of  these  new  property-rights  thus  created  may  become 
and  do  become  a  new  Capital.  These  new  rights,  however, 
this  new  and  acknowledged  "  property,"  are  not  "  titles  " 
to  any  specific  valuables  whatever,  as  Price  supposed ;  "a 
title-deed  or  a  mortgage  "  is  a  totally  different  thing  from  a 
Credit,  since  the  one  always  describes  and  gives  a  qualified 
title  to  some  specific  and  tangible  thing,  while  a  credit-right 
is  always  a  claim  against  a  person  ;  the  Roman  law  drew 
this  distinction  perfectly,  a  credit-right  was  a  jus  in  perso- 
nam,  while  a  title-right  was  a  jus  in  re  ;  the  common  Latin 
language  as  spoken  and  written  marked  the  difference  by 


340  PRINCIPLES   OF   POLITICAL  ECONOMY. 

separate  words,  a  credit-right  or  true  debt  was  a  Mutuum, 
while  a  title-right  or  thing  loaned  was  a  Commodatum ; 
and  the  Law  of  our  present  national  banks  explicitly 
recognizes  this  universal  and  fundamental  distinction,  by 
requiring  the  banks  to  loan  money  on  personal  security 
only,  that  is  to  say,  no  tangible  things  whatever,  not  even 
real  estate,  are  allowed  to  be  taken  as  original  security  for 
any  loan.  Banks  deal  only  in  true  debts, — mutua, — 
and  when  they  keep  custody  of  concrete  valuables  —  com- 
modata  —  for  their  customers,  it  is  as  trustees  or  bailees 
and  not  at  all  as  debtors. 

Our  late  Oxford  friend  was  far  too  well  informed  in 
general  to  contend,  that  a  cheque,  for  example,  is  "  the 
right  to  acquire  possession  "  of  any  specific  property  any- 
where ;  the  drawer  has  indeed  deposited  money  with  the 
banker  on  whom  the  cheque  is  drawn,  but  that  money 
became  the  banker's  money  the  moment  it  was  deposited 
and  no  longer  his  own;  the  cheque,  accordingly,  is  a 
general  claim  on  the  banker,  and  not  at  all  on  any  special 
fund  in  the  banker's  hands  ;  it  follows,  therefore,  that  the 
excess  of  the  banker's  average  deposits  over  his  average 
reserves  to  secure  them,  is  a  new  creation  of  Credit,  a 
new  resource  of  Production,  a  new  Purchasing-power  now 
available  to  the  banker  not  previously  and  practically 
available  to  anybody,  a  new  Valuable  which  he  proposes 
to  use  and  does  use  for  the  sake  of  profits  accruing,  conse- 
quently a  new  Capital. 

Now  let  us  listen  to  the  objections  to  this  view  by  a 
practical  banker,  J.  H.  Walker,  of  Worcester,  Mass.,  in  a 
little  book  of  his  on  Banking  published  in  1882:  "A 
man  always  borrows  something  of  intrinsic  value.  What  he 
borrows  is  not  apiece  of  paper ,  whatever  may  be  on  it,  but  a 
farm,  a  house,  a  factory,  or  a  part  of  them  ;  a  store,  a  mine, 
or  goods.  No  man  can  borrow  or  lend  anything  else.  The 


COMMERCIAL   CREDITS.  341 

borrower  gets  from  the  lender  what  puts  him  in  possession  of 
the  things  he  seeks,  and  it  must  be  some  one  of  these  things. 
So  of  all  money  (except  coin).  It  has  no  value  in  itself.  It 
adds  nothing  to  the  capital  of  the  world.  It  purports  to  be 
and  is  only  a  title  to  property,  a  convenient  device  for  trans- 
ferring the  ownership  of  property." 

This  author  is  led  astray  by  the  worse  than  useless 
adjective  "  intrinsic,"  having  never  yet  learned  that  there  is 
only  one  kind  of  value  in  the  world  of  Economics,  namely, 
purchasing-power ;  he  sees  men  as  trees  walking  through 
the  haze  cast  over  paper-money  by  John  Law  in  the  last 
century,  as  if  paper-money  must  be  "  based  "  on  something 
tangible  and  specific  ;  he  makes  a  narrow  and  false  assump- 
tion that  the  only  objects  ever  bought  or  borrowed  are 
corporeal  "  things,"  denying  that  the  debts  in  which  alone 
he  deals  as  a  banker  are  realities  as  much  as  any  "  thing  " 
can  be  ;  and  it  all  comes  in  his  case,  as  in  the  case  of 
hundreds  of  others,  from  a  totally  inadequate  analysis  of 
Valuables  into  their  three  separate  and  virtually  independ- 
ent kinds,  namely,  Commodities  and  Services  and  Promises. 
Mr.  Walker,  although  he  writes  a  book  on  purpose  to  do 
this,  can  not  explain  at  all  under  his  view  the  Deposits  and 
Discounts  of  his  own  bank,  and  would  be  as  dumb  as  an 
oyster  when  confronted  with  the  "  Cash  Credits  "  of  Scot- 
land. 

(5)  The  fifth  advantage  of  the  use  of  Credit,  and  the 
last  one  to  be  mentioned  in  this  connection,  is,  that  it 
dispenses  with  the  use  and  wear  of  large  amounts  of 
expensive  Money.  It  is  perfectly  certain  that  Credit 
answers  many  of  the  purposes  of  Money.  Suppose  A  has 
bought  of  B  $100  worth  of  goods,  and  B  has  bought  of  A 
$125  worth  of  goods.  Three  ways  are  open  to  close  up 
these  transactions.  A  may  pay  B  and  B  may  pay  A  in 
money.  This  would  take  $225.  A  may  pay  B  in  money, 


342  PRINCIPLES   OF   POLITICAL  ECONOMY. 

and  B  may  send  that  back  with  $25  more.  This  would 
take  $125.  Or  A  and  B  may  mutually  balance  their 
credit-books,  and  B  pay  the  difference  in  account.  This 
would  take  but  $25.  It  is  clear  then,  that,  as  one  or  other 
of  these  general  methods  prevails  in  practice,  the  quantity 
of  expensive  money  required  to  do  the  business  of  a  country 
is  very  different.  Just  so  in  international  trade.  Foreign 
bills  of  exchange  lessen  enormously  the  quantity  of  me- 
tallic money  that  would  otherwise  have  to  be  transported. 

It  is  not  strange  that  some  thinkers  and  writers,  seeing 
these  unquestionable  benefits  of  Credit  even  within  the 
peculiar  sphere  of  Money  itself,  have  come,  like  Herbert 
Spencer  and  many  more,  to  think  and  teach  that  Credit 
might  answer  all  the  purposes  of  money.  Credit  does 
take  the  place  of  money  in  part.  Can  it  take  the  place  of 
money  entirely  ?  Let  us  see.  We  have  denned  Credit  as 
a  right  to  demand  something  of  somebody,  and  Debt  as  an 
obligation  to  render  something  to  somebody ;  the  denomina- 
tions of  Money  are  certainly  needful  in  order  to  measure 
this  right  or  obligation ;  and  how  can  the  denominations  of 
money  be  established  or  maintained  at  all  separate  from 
the  use  of  some  money  itself  as  a  circulating  medium? 
Moreover,  great  as  is  the  undoubted  power  of  Credit,  vast 
as  are  these  five  advantages  from  its  current  use,  still,  each 
particular  piece  or  form  of  Credit  waits  for  something 
beyond  itself;  it  waits  for  its  own  extinction  in  future 
time ;  which  can  only  come  about  in  one  of  three  ways, 
(a)  by  set-off  against  another  debt  with  or  without  a 
balance,  (b)  by  renewal  which  creates  a  new  debt  and 
extinguishes  the  old,  (c)  by  its  payment  in  money;  and 
now  how  can  these  extinctions  come  about  without  the 
current  use  of  some  money,  at  least  to  settle  the  balances 
at  the  clearing-house  ? 

Furthermore,  there  have  always  been  heretofore  in  all 


COMMERCIAL   CREDITS.  343 

commercial  countries  longer  or  shorter  periods,  called 
"  crises "  or  "  panics,"  during  which  there  was  a  popular 
reluctance  to  accept  in  exchange  the  ordinary  instruments 
of  Credit.  Money,  and  much  of  it,  was  then  found  to  be 
indispensable.  Indeed  the  very  advantages  of  Credit 
itself,  which  have  now  been  explained  at  length,  are 
dependent  on  this,  that  there  be  alongside  of  it  to  sustain 
and  limit  it,  a  current  and  legal  measure  of  Services  in 
metallic  form,  in  whose  denominations  Values  may  be  reck- 
oned, in  whose  coins  the  balances  of  Credit  may  be  struck, 
and  whose  presence  secured  everywhere  by  natural  laws 
alone  may  enable  fulfilment  to  join  hand  in  hand  with 
promise.  If  ever  Credit  should  try  to  usurp  the  whole 
domain  of  Money,  a  tolerable  standard  of  Value  or  meas- 
ure of  Services  would  be  no  longer  possible,  Credit  itself 
would  lose  its  foothold,  and  the  vast  balloon  of  Promise, 
sailing  for  awhile  through  the  blue,  the  joy  of  projectors 
and  the  wonder  of  credulous  spectators,  would  of  a  sud- 
den descend  to  the  earth  collapsed  and  ruined. 

4.  There  are  too  some  disadvantages  inhering  in  Credit. 
This  admitted  fact  makes  no  valid  argument  against  the 
use  and  extension  of  it;  because  there  are  disadvantages 
connected  with  all  human  devices  whatever,  —  with  all 
means  contrived  to  reach  earthly  ends  —  and  even  a  child 
may  discover  many  of  these  ;  some  objections  lie  against 
everything,  and  against  everybody,  and  the  practical  ques- 
tion always  is,  Which  preponderates,  the  good  or  the  evil  ? 
In  respect  to  Credit  there  can  be  no  doubt,  that  the  good 
outweighs  the  evil  many  fold ;  still,  in  accordance  with  the 
purpose  in  this  book  of  both  writer  and  readers  to  look  on 
both  sides  of  each  significant  point  in  Economics,  we  will 
now  give  attention  to  the  chief  disadvantages  inhering  in 
the  nature  of  Credit. 

(1)    In  the  first  place,  when  credit  is  much  given  by 


344  PRINCIPLES   OF   POLITICAL  ECONOMY. 

dealers  to  ordinary  retail  buyers,  the  reverse  results  take 
place  from  those  but  just  now  characterized  as  happening 
under  bank  credits,  namely,  capital  passes  out  from  the 
hands  of  productive  operators  into  hands  less  able  and 
less  willing  to  use  it  in  further  production.  Indeed,  in 
most  such  cases  it  ceases  to  be  capital,  and  is  expended  in 
immediate  gratification.  It  is  much  easier  for  the  average 
man  of  fair  character  within  the  present  customs  of  Society 
to  "  get  trusted  "  than  to  pay  "  as  he  goes."  Such  a  man 
is  even  called  "  easy-going."  He  almost  always  over- 
estimates his  resources  for  the  future,  and  under-estimates 
his  obligations  at  the  present.  It  is  always  a  disadvantage 
in  the  long  outlook  for  both  parties  when  such  men  easily 
and  largely  "  get  trusted."  Let  us  take  a  sample  case : 
when  an  industrious  artisan  or  efficient  merchant  has 
given  credit  for  six  months  or  a  year  to  dilatory  customers, 
it  is  so  much  withdrawn  for  so  long  a  time  from  his  active 
capital ;  and  in  order  to  make  up  his  consequent  loss  of 
profit  to  the  average  and  expected  rate,  there  must  be  an 
addition  to  the  prices  of  his  wares  sold  to  other  parties ; 
and,  besides,  some  bad  debts  belong  to  such  a  system,  and 
there  must  be  additional  prices  somewhere  to  compensate 
for  this ;  and  thus  the  customers  who  pay  promptly  bear  a 
part  of  the  burden  of  the  delinquents,  who  at  least  do  not 
wholly  escape,  inasmuch  as  they  ultimately  (if  they  pay 
at  all)  pay  a  price  enhanced  by  their  own  delay.  Thus, 
if  the  current  and  expected  profit  on  his  capital  be  12%, 
and  the  artisan  or  merchant  sells  and  gets  returns  four 
times  a  year  on  the  average,  something  less  than  3  %  profit 
may  be  charged  to  each  article  on  the  average ;  while 
if  he  only  gets  returns  at  the  end  of  the  year,  at  best 
12%  must  be  put  on  everything  at  the  average,  and  in 
reality  considerably  more,  because  of  the  bad  debts  that 
stick  like  a  burr  to  that  way  of  doing  business.  Hence 
the  excellent  maxim,  "  Quick  sales  and  small  profits." 


COMMERCIAL   CREDITS.  345 

(2)  There   is  a  greater  inherent  uncertainty  in  values 
connected  with  credits  than  in  those  connected  with  com- 
modities, or  than  with  those  connected  with  personal  ser- 
vices.    We  have  already  seen  repeatedly  that  Value  has 
its  sphere  of  operations  in  the  Past,  in  the  Present,  and  in 
the  Future.     There  is  some  uncertainty  connected  with 
what  has  been  done  in  reference  to  value,  since  the  market 
may  prove  to  have  been  miscalculated,  and  the  commodities 
to  have  become  unsuitable  ;  there  is  perhaps  more  uncer- 
tainty connected  with  what  is  now  being  done  in  reference 
to  value,  because  the  services  bargained  and  being  paid  for 
may  prove  to  be  less  steady  and  skilful  than  was  supposed ; 
but  in  the  very  nature  of  the   case  there  is  still  greater 
uncertainty  connected  with  what  is  to  be  done  in  relation 
to  its  value,  because  in  the  first  two  cases  some  at  least  of 
the  conditions  are  already  fixed,  while  in  the  last  one  all 
of  them  are  at  least  open  to  hazard.     There  is  sufficient 
certainty  in  all  three  of  the  grand  divisions  of  ~Time  to  jus- 
tify, and  probably  to  reward,  operations  in  each  in  reference 
to  value  under  the  peculiar  limitations  and  conditions  of 
each,  but  credits  are  naturally  more  sensitive  in  the  law  of 
their  value  than  either  commodities  or  services. 

(3)  Largely   in   consequence    of   what  has   just  been 
expressed  under  the  last  head,  credit-exchanges  are  more 
likely   than   commodities-exchanges    or   than   services-ex- 
changes to  become  unduly  multiplied  and  consequently 
to  fail  of  ultimate  realization.     The  majority  of  men  are 
sanguine  in  relation  to  the  future.     Unless  they  are    in 
actual  contact  with  their  limitations,  they  are  apt  to  belittle 
the  rigidity  and  inevitableness  of  such  limitations.     As  the 
outcome  of  this,  promises  are  apt  to  overpass  the  powers 
of  fulfilment.     No  more  bales  of  cotton  of  any  one  year's 
crop  can  be  actually  delivered  to  buyers,  than  have  been 
actually  grown  and  marketed ;   the  services  of  no  more 


346  PRINCIPLES   OF  POLITICAL  ECONOMY. 

men  in  any  capacity  can  be  contracted  for  and  rendered, 
than  there  are  men  able  and  willing  to  work;  here  are 
impassable  limits ;  but  the  field  of  the  future  is  buoyant 
with  possibilities ;  and  hence  credits,  whose  sphere  is  the 
future,  though  legitimate  and  potent  under  the  proper  con- 
ditions, lie  in  a  field  whose  limits  are  invisible,  and  within 
which  Hope  is  ever  a  tempter  to  overdoing. 

Is  speculation  proper?  Certainly;  if  by  the  word 
"speculation"  is  meant  the  buying  of  anything  with  an 
expectation  based  on  rational  probabilities  of  being  able  to 
sell  it  again  under  different  conditions  at  a  higher  price. 
Speculation  in  this  sense  is  both  proper  and  beneficial  to 
the  immediate  parties  to  it,  and  to  the  general  public  as 
well,  because  the  values  of  things  thus  bought  and  sold 
neither  fall  so  low  nor  rise  so  high  as  they  otherwise  would 
do,  which  is  a  public  gain.  Speculators  as  a  rule  buy 
on  a  falling  market,  which  tends  to  lift  it,  and  sell  on  a  ris- 
ing market,  'which  tends  to  lower  it.  It  is  better  for  all 
concerned,  that  the  necessaries  and  conveniencies  of  life 
should  bear  as  steady  a  market  as  is  possible  in  the  nature 
of  things,  summer  and  winter,  year  in  and  year  out ;  and 
the  ports  of  every  nation  should  be  open  with  the  slightest 
possible  hindrance  in  the  way  of  tax  to  the  corresponding 
necessaries  and  conveniencies  from  abroad,  whenever  com- 
binations and  "  corners  "  attempt  to  lift  their  prices  beyond 
the  level  determined  by  a  natural  and  free  Supply  in  con- 
tact with  the  current  Demand. 

Credits  occupy  the  field  of  Probabilities  ;  that  is  to  say, 
probabilities  seeming  to  be  such  to  men  of  sharp  insight 
and  cultivated  forecast.  When  such  men  on  such  grounds 
buy  and  sell  "  futures  "  in  cotton  or  corn ;  when  they  buy 
and  sell  stocks  either  "  short "  or  "  long  "  ;  when  they  seem 
to  themselves  to  perceive  a  sound  reason  for  lurching  over 
from  the  "bulls"  to  the  "bears,"  or  vice  versa;  and  when 


COMMERCIAL   CREDITS.  347 

they  really  think  that  what  they  are  wont  to  deal  in  has 
touched  bottom  in  price,  and  they  buy  now  in  view  of  a 
rise ,  Economics  has  nothing  to  say  in  blame  of  any  or  all 
of  these  operations,  for  they  are  the  same  in  substance  and 
motive  as  all  other  buying  and  selling ;  but  nevertheless, 
it  has  this  to  say,  that  all  these  operations  in  credit-futures 
lie  adjoining  to  and  in  dangerous  proximity  with  another 
field,  for  operations  within  which  it  has  nothing  but  blame 
to  utter.  Gambling  occupies  the  field  of  Chance.  There 
is  a  great  difference  between  chances  and  probabilities. 
Political  Economy  has  no  trouble  in  drawing  a  fast  and 
hard  line  between  them. 

But  practically  the  operators  in  credit-futures  experience 
an  immense  difficulty  in  keeping  within  this  line  of  rational 
probabilities.  The  coolest  heads  are  apt  to  become  heated, 
and  to  lose  sight  of  distinctions,  in  the  close  air  of  the 
Stock  Exchange  and  the  offices  circumjacent.  Some  oper- 
ators openly  confess  they  know  nothing  which  way  the 
index  of  reason  points,  by  buying  "  straddles,"  as  they  are 
significantly  called.  A  friend  and  old-time  pupil,  who  has 
for  years  been  accustomed  to  these  excitements  in  New 
York,  said  recently  to  the  writer,  —  "  The  Stock  Exchange 
is  a  great  gambling  hell,  and  that's  all  there  is  of  it!"  In 
buying  and  selling  of  all  kinds,  both  sides  gain :  in  gam- 
bling of  all  kinds,  what  one  side  gains  the  other  side  loses  : 
therefore,  under  a  sound  money,  healthful  public  opinion, 
and  good  law,  gambling  never  can  become  formidable.  In 
every  lottery  scheme,  no  matter  how  honestly  managed, 
the  sum  of  the  prices  of  the  tickets  is  greater  than  the  sum 
of  the  prizes  offered,  otherwise  nothing  would  be  left  for 
the  profits  of  the  managers ;  therefore,  he  would  be  a  very 
foolish  man,  who  should  buy  all  the  tickets  of  a  given  lot- 
tery with  the  certainty  of  drawing  all  the  prizes ;  and  he  is 
a  still  more  foolish  man,  who  should  take  his  chance  of 
drawing  all  the  prizes  by  buying  two  or  ten  tickets. 


348  PRINCIPLES    OF   POLITICAL   ECONOMY. 

(4)  Another  and  a  principal  Disadvantage  of  Credit  is 
seen  in  its  usual  action  on  prices  through  increased  Demand, 
and  its  consequent  tendency  to  bring  about  Commercial 
Crises.  Any  man's  whole  purchasing-power  is  made  up  of 
three  items :  first,  the  property  in  his  possession ;  secondly, 
the  values  that  are  owed  to  him ;  and  thirdly,  his  credit. 
He  can  buy  services  of  the  three  kinds  with  these  three 
valuables  ;  and  the  sum  of  his  power  to  buy  is  exactly 
measured  by  the  aggregate  of  these  three  valuables  under 
his  control.  But  while  the  first  two,  his  property  and 
debts  due,  are  limited  and  ascertainable,  the  third  (his 
credit)  is  indefinite  and  undeterminable  beforehand.  Being 
based  upon  confidence,  which  is  itself  sensitive  and  variable, 
a  man's  credit  at  one  time  may  be  vastly  greater  than  at 
another,  compared  with  his  other  two  means  of  purchase  ; 
and  if  he  have  the  reputation  of  doing  a  safe  and  regular 
business,  and  is  favored  by  circumstances,  he  will  find 
himself  able  sometimes  to  buy  on  credit  to  an  extent  out 
of  all  expected  proportion  to  his  other  capital.  When, 
therefore,  credit  is  offered  and  received  for  commodities, 
it  has  the  same  influence  upon  their  prices  as  when  money 
is  offered  and  received  for  them.  It  follows,  consequently, 
that  there  is  likely  to  be  a  general  rise  of  prices  whenever 
there  is  an  extension  of  credit  for  the  purpose  of  purchas- 
ing ;  indeed,  when  money  only  is  used  to  buy  with,  there 
can  not  be  a  general  rise  of  prices,  because  while  more 
money  may  be  spent  on  some  things,  and  they  rise  in 
price,  there  would  be  less  money  for  other  things,  and  they 
would  rather  fall  in  price ;  but  when  credit  is  used  freely 
in  addition,  and  increased  purchases  go  on  in  all  depart- 
ments at  once,  there  is  apt  to  be  a  rise  of  prices  as  to  all 
commodities  and  a  universal  spirit  of  speculation. 

At  such  times,  and  while  prices  are  still  rising,  men 
seem  to  be  making  great  gains  ;  everybody  wishes  to 


COMMERCIAL   CREDITS.  349 

extend  his  operations  by  means  of  all  his  money  and  all 
his  credit;  and  forms  of  indebtedness  are  multiplied  on 
every  hand.  By  and  by  it  begins  to  be  perceived  in  cer- 
tain quarters  that  the  matter  has  been  overdone  ;  specula- 
tive purchases  cease  ;  banks  become  particular  whose  paper 
they  discount ;  men  find  it  difficult  to  sell  their  debts  due 
in  order  to  provide  for  their  debts  owed ;  they  fall  back 
on  the  sale  of  their  commodities,  but  when  holders  are 
anxious  to  sell,  prices  always  fall;  a  panic  now  sets  in, 
more  irrational,  if  possible,  than  the  previous  overconfi- 
dence ;  their  inflated  credits  and  commodities  collapse  in 
the  hands  of  their  holders;  sales  at  great  sacrifices  are 
inadequate  to  meet  the  mass  of  maturing  debts  contracted 
when  confidence  was  high;  men  fail,  and  must  fail;  the 
banks  cannot  help  them,  or  think  they  cannot;  and  so 
wide-spread  commercial  disaster  comes  in. 

Such  commercial  crises  swept  over  the  United  States  in 
1837,  1857,  and  1873;  and  will  doubtless  recur  in  the  time 
to  come.  They  always  arise  from  disordered  credits,  and 
though  not  necessarily  connected  with  credit-money,  are 
much  more  likely  to  come  in  connection  with  that.  The 
more  strong  and  conservative  the  Banks  maintain  their 
ordinary  condition,  the  more  powerfully  can  they  operate 
to  prevent  or  abate  a  panic.  They  ought  always  to  be 
on  the  shore  and  never  in  the  stream.  From  the  very 
nature  of  banks  and  of  the  motives  that  create  and  operate 
them,  they  are  apt  to  sell  for  a  profit  in  ordinary  times 
about  all  of  the  credit  they  safely  can  ;  unless,  then,  they 
foresee  a  stringency  some  time  ahead,  and  curtail  their 
loans,  and  otherwise  keep  their  position  strong  in  reserves 
and  deposits,  they  will  be  powerless  to  help  even  their 
most  deserving  customers  when  the  panic  sets  in ;  even 
then  by  a  special  association  with  other  banks  in  the  same 
city  for  reciprocal  support  during  a  crisis,  as  was  happily 


350  PRINCIPLES  OF  POLITICAL  ECONOMY. 

brought  about  in  New  York  some  years  ago,  something 
may  be  done  for  their  common  constituency  and  good  cus- 
tomers to  help  them  out  of  trouble  by  discounts  continued 
to  them;  especially  as  it  is  not  money  so  much  that  is 
needed  to  allay  a  panic,  nor  even  credit  actually  given,  as 
it  is  a  general  knowledge  that  abundant  credit  can  and 
will  be  given  either  by  some  pre-eminent  bank,  like  the 
Bank  of  England  in  London,  or  by  an  association  of  banks 
for  that  special  purpose,  like  the  agreement  just  referred 
to  as  entered  into  temporarily  by  the  banks  of  New  York 
city.  As  a  panic  becomes  imminent  anywhere,  some  Bank 
or  banks  there  ought  to  be  in  a  position  to  extend  their 
discounts  freely,  at  a  high  rate  of  interest  indeed,  so  as 
to  discriminate  between  customers  urgent  for  and  deserv- 
ing of  discounts,  and  another  class  whose  need  of  accom- 
modation is  not  so  sore,  and  a  third  class  who  are  sure  to 
fail  if  the  Panic  stalks  forward. 

A  permission  given  of  the  Government  to  the  Bank  of 
England  to  overpass  under  these  circumstances  the  Dis- 
count-limits laid  down  by  the  Bank  Act  of  1844,  has  on 
three  several  occasions  acted  like  a  charm  to  still  the 
ragirigs  of  a  commercial  storm.  On  each  of  these  occa- 
sions, 184T,  1857,  and  1866,  the  Bank  was  forbidden  by 
the  Privy  Council  to  discount  for  less  than  10%. 

As  the  inclined  plane  of  rising  prices  is  slowly  as- 
cended before  a  Crisis,  so  the  fall  of  general  prices 
afterwards  seems  to  be  rather  gradual  also  till  the  lowest 
point  of  them  is  reached,  from  which  another  ascent  is 
apt  to  commence.  The  following  table  taken  from  the 
New  York  Public  of  the  first  week  of  November,  1881,  is 
instructive  on  both  these  points.  Taking  the  prices  in 
1860  of  43  articles  of  prime  necessity,  which  constituted 
then  and  afterwards  about  J  of  the  commerce  of  the 
country,  as  the  normal  standard  or  100,  the  table  gives  the 


COMMERCIAL   CREDITS.  351 

comparative  gold  prices  of  the  same  for  four  years  previous 
to  1873  and  for  seven  years  subsequent,  as  follows :  — 

1869  .......  116  1875 107 

1870 118  1876 100 

1871 120  1878 81 

1872 122  1879 98 

1873 113  1880 103 

1874 115  1881 Ill 

(5)  A  penultimate  Disadvantage  of  Credit  may  be 
noted  in  the  facility  which  it  offers  for  contracting  great 
national  Debts.  There  are  certain  aspects,  under  which  a 
Nation  may  be  properly  regarded  as  a  moral  person,  and  as 
such  person  may  pledge  the  public  faith  for  the  present 
and  the  future,  becoming  a  debtor  to  its  own  people  or  to 
foreigners,  and  thus  a  public  debt  may  be  made  a  sort  of 
mortgage  on  the  national  property  and  income.  Now,  it 
cannot  be  fairly  denied,  that  incidental  advantages  may 
spring  up  in  connection  with  such  a  national  debt :  for 
example,  the  bonds,  which  are  its  evidences,  may  open  up 
to  the  people  a  convenient  form  of  investment  for  pres- 
ently inactive  capital,  and  for  trust  funds  of  all  kinds ; 
there  can  be  little  doubt  that  certain  classes  of  persons 
holding  these  national  obligations  are  won  thereby  to  a 
stronger  patriotism  and  become  better  friends  to  stability 
in  government,  although  this  consideration  applies  mainly 
to  new  governments  and  to  those  temporarily  endangered ; 
both  England  and  the  United  States  now  make  a  portion 
of  their  public  debt  the  basis  of  a  national  system  of 
Banking,  but  it  is  perhaps  questionable  whether  this  can 
be  justly  put  among  the  incidental  benefits  of  the  Debts ; 
and  again  "  a  moderate  debt  adds  to  the  credit  of  a  Nation, 
and  its  ability  to  raise  money  in  an  emergency,  for  bankers 
and  capitalists  are  more  ready  to  take  such  securities  as 
they  are  in  the  habit  of  dealing  in  "  (Sidney  Homer). 


352  PRINCIPLES    OF   POLITICAL   ECONOMY. 

On  the  other  hand,  the  burdens  of  a  National  Debt  are 
very  apparent :  for  example,  the  annual  interest  charge  to 
the  Union  at  the  close  of  our  late  civil  war  was  $150,000,- 
000,  which  gradually  declined  by  the  lowering  of  the 
interest-rate  and  by  the  paying  off  of  principal  to  $61,368,- 
912  for  the  fiscal  year  ending  June  30,  1881 ;  between 
March,  1869,  and  August,  1873,  the  United  States  paid 
$378,015,065  on  the  principal  of  its  public  debt ;  the  collec 
tion  of  the  Internal  Revenue  alone  of  the  national  govern- 
ment cost  for  the  fiscal  year  1867,  $7,712,089 ;  and  in  each 
of  the  two  years,  1870  and  1881,  a  little  over  $101,500,000 
was  paid  out  to  reduce  tho  principal  of  the  Debt.  All 
those  vast  sums  came  out  of  the  industry  and  income  of 
individuals  ;  and  taxation  to  any  degree  as  all  this  implies 
is  a  mighty  disturbance  to  industry,  and  gives  rise  to  an 
army  of  officials  who  eat  out  a  considerable  percentage  of 
all  they  collect.  Moreover,  the  various  expedients  of  tax- 
ation, which  are  always  practically  unequal  in  their  opera 
tion,  are  apt  to  give  rise  to  irritation  and  political  agitation, 
and  even  sometimes  to  threats  of  repudiation,  especially 
when  the  occasion  has  gone  by  under  which  the  debt  was 
contracted,  and  another  generation  is  called  upon  to  pay 
off  a  debt  it  had  no  agency  in  creating. 

Here  the  vexed  question  arises,  how  far  has  one  genera- 
tion the  right  to  throw  upon  succeeding  ones  the  burdens 
of  a  National  Debt  ?  The  true  answer  to  this  question  is, 
it  has  a  very  limited  right  indeed.  The  opposite  doctrine 
implies  tacitly  when  not  openly,  that  the  succeeding  gener- 
ations will  have  no  occasion  for  extraordinary  expenses  of 
their  own,  and,  therefore,  may  rightfully  be  made  to  con- 
tribute to  the  extraordinary  expenditures  of  this  genera- 
tion. But  it  is  pure  assumption  to  take  for  granted,  that 
the  next  generations  will  not  have,  of  some  kind  or  other, 
as  much  occasion  for  an  extraordinary  effort  in  the  way  of 


COMMERCIAL   CREDITS.  353 

defence  or  of  improvement  as  the  present  generation  has 
had.  It  is  a  common  but  harmful  illusion  to  estimate 
what  has  now  to  be  done  as  of  much  more  importance  than 
what  will  have  to  be  done.  Therefore,  to  throw  the  pres- 
ent burden  forward  on  another  generation  of  men,  who  are 
likely  to  have  to  make  their  own  special  exertion,  just  as 
great  and  just  as  imperatively  called  for,  is  a  procedure 
unwarranted  by  past  experience.  The  view  that  has  long 
prevailed  in  practice,  that  a  great  War-debt,  for  example, 
might  be  easily  and  justly  cast  upon  posterity,  has  again 
and  again  given  rise  to  needless  and  expensive  wars ;  those 
have  been  called  upon  to  pay  the  piper,  who  perceived  the 
utter  inutility  of  the  expenditure ;  and  thus  bitterness  has 
been  added  to  burden. 

Besides,  the  men  to  fight  the  battles,  and  the  capital  by 
which  to  feed,  clothe,  and  furnish  them  the  munitions  of 
war,  must  come  from  that  generation;  and  there  is  always 
great  injustice  in  the  manipulations  of  a  great  debt  osten- 
sibly incurred  to  obtain  this  capital,  and  the  debt  itself  is 
usually  in  large  part  rather  a  memorial  of  the  war  than  of 
the  means  by  which  its  expenses  were  actually  defrayed. 

The  generation  of  American  citizens  not  yet  wholly 
passed  off  the  stage  was  called  on  in  the  Providence  of 
God  to  suppress  a  Civil  War  of  enormous  proportions,  and 
to  eradicate  a  social  institution  that  was  thoroughly  bad ; 
the  expense  of  doing  this  was  many  fold  enhanced  by 
timorous  counsels  in  the  field,  by  class  legislation  in  Con- 
gress, and  by  wretched  financiering  in  the  Cabinet;  but 
the  Debt,  vast  as  it  was,  and  needlessly  incurred  as  a  large 
portion  of  it  was,  has  already  in  good  part  been  paid  off 
and  must  be  entirely  paid  off  by  the  generation  that  in- 
curred it.  That  this  great  task  may  be  thus  completed, 
will  require  (1)  an  economical  administration  of  the  na- 
tional Government;  (2)  an  avoidance  of  intervention  in 


354  PRINCIPLES    OF   POLITICAL   ECONOMY. 

the  affairs  of  our  Neighbors,  and  of  entangling  alliances 
with  Foreigners;  (3)  a  free  Commercial  System,  under 
which  the  taxes  shall  be  adjusted  only  towards  the  most 
productive  revenue;  and  (4)  a  constant  and  onerous  home 
Taxation. 

(6)  The  final  Disadvantage  of  Credit  is  this,  that  it  is 
apt  to  confuse  the  minds  of  men  as  to  its  own  nature,  from 
its  apparent  resemblance  to  something  else,  which  is  at 
bottom  wholly  unlike  it.  The  people  of  the  United  States 
have  suffered  greatly  from  this  confusi'on,  and  are  likely  to 
suffer  from  it  still  more  in  the  time  to  come,  both  in  their 
property  and  progress  at  home  and  in  their  good  name 
abroad ;  and  it  becomes  all  good  citizens,  and  especially  all 
those  called  upon  to  pronounce  on  the  Law  of  the  Land,  to 
know  thoroughly  the  radical  difference  between  a  Credit 
and  a  Quittance,  and  so  to  escape  the  contagious  confusion 
that  has  entered  and  stirred  up  the  popular,  and  even  the 
judicial,  mind  of  this  country.  All  through  the  present 
chapter  has  been  insisted  on  and  illustrated  the  point,  per- 
haps to  the  weariness  of  the  reader,  that  Credit  is  always 
essentially  the  Promise  of  one  person  to  another,  and  that 
whatever  is  thus  Promised  is  necessarily  and  fundamentally 
different  from  the  Promise  itself.  To  confound  those  two 
things  as  if  they  were  or  could  be  made  one  and  the  same 
thing,  is  in  thought  illogical  and  in  practice  execrable. 

And  yet  it  must  be  allowed,  that  there  is  somewhat  in 
the  nature  of  Credit,  that  makes  this  confusion  plausible, 
or  else  it  never  would  prevail ;  and  also  that  there  is  some- 
thing more  still  to  make  it  plausible  in  the  nature  of 
Money,  which  last  point  can  only  be  cleared  up  in  the  next 
following  chapter  under  that  title. 

Mr.  E.  G.  Spaulding  of  Buffalo,  in  his  copious  and  excel- 
lent History  of  the  Legal  Tender  Act,  "  all  of  which  he 
saw  and  part  of  which  he  was,"  as  the  chairman  of  the  sub- 


COMMEKCIAL   CREDITS.  355 

committee  of  the  Ways  and  Means  at  the  time  the  Act  was 
passed,  demonstrates  the  extreme  reluctance  of  everybody 
concerned  to  give  a  forced  circulation,  that  is,  a  compul- 
sory legal-tender  quality,  to  the  first  batch  of  Treasury 
Notes  to  the  amount  of  1150,000,000  in  February,  1862. 
We  have  already  noted  in  another  place  in  this  chapter, 
that  two  successive  batches  of  similar  Notes,  each  to  the 
same  amount  as  the  first,  were  issued  within  less  than  a 
year.  These  Notes  then  and  since  called  Greenbacks,  bore 
at  the  time  four  essential  features :  first,  they  were  both  in 
terms  and  in  reality  national  Promises  to  pay  to  the  bearer 
gold  dollars  of  the  then  and  present  standard  of  weight 
and  fineness,  because  there  is  no  other  possible  meaning 
to  the  words  "THE  UNITED  STATES  WILL  PAY  TO  THE 
BEARER  FIVE  DOLLARS  " ;  second,  in  addition  to  their  be- 
ing a  forced  loan  from  the  people  to  the  amount  of  notes 
authorized,  they  were  given  a  forced  circulation  as  money 
by  means  of  the  clause,  "  and  shall  also  be  lawful  money 
and  a  legal  tender  in  payment  of  all  debts  public  and  pri- 
vate within  the  United  States  except  duties  on  imports  and 
interest  on  the  national  bonds"  which  clause  still  recognizes 
gold  dollars  as  the  only  universal  and  standard  money ; 
third,  the  notes  were  m&de  fundable  in  sums  of  fifty  dollars, 
"  or  some  multiple  of  fifty  dollars,"  in  six-per-centum  gold 
bearing  bonds  of  the  United  States,  then  called  5-20's, 
again  in  this  clause  recognizing  the  radical  difference 
between  the  legal-tender  paper  promises  as  money  and  the 
gold  dollars  promised  in  them,  in  which  gold  money  the 
interest  and  principal  of  the  bonded  debt  must  still  be 
paid ;  and  fourth,  these  notes  were  publicly  known  and 
acknowledged  by  the  Issuer  and  the  receivers  to  be  pres- 
ently irredeemable,  since  the  Government  did  not  have,  and 
did  not  pretend  to  have,  any  coin  with  which  to  redeem 
them,  and  everybody  knew  that  they  were  made  a  legal- 
tender  because  they  were  irredeemable, 


356  PRINCIPLES   OF   POLITICAL   ECONOMY. 

These  prompt  recognitions  of  the  impassable  gulf  be- 
tween a  Promise  and  what  is  Promised,  were  confirmed 
by  all  that  happened  afterwards.  The  notes,  notwith- 
standing they  were  legal  tender  and  all  bonds  of  the 
United  States  could  at  first  be  bought  with  them  at  par, 
almost  immediately  began  to  droop  as  compared  with  gold. 
The  daily  quotations  showed  a  pretty  steady  decline  for 
two  years.  On  Jan.  15,  '64,  gold  in  greenbacks  was 
100  :  155;  April  15,  100  :  178;  June  15,  100  :  197;  June 
29,  100  :  250,  that  is,  40  cents  to  the  dollar ;  and  July  11, 
100  :  285,  or  35  cents  to  the  dollar  in  gold,  their  lowest 
point.  From  this  depth  they  slowly  rose  with  many  fluc- 
tuations back  and  forth  from  many  causes  for  14  years. 
Jan.  1,  1879,  they  became  redeemable  in  gold,  and  have 
so  continued  till  the  present  time. 

When  the  Civil  War  was  all  over,  and  these  startling 
vicissitudes  of  the  paper  money  were  measurably  for- 
gotten; though  no  prominent  man,  when  they  were 
passed,  thought  the  Legal-Tender  Acts  constitutional; 
the  paper  money  began  to  be  popular;  the  distinction 
between  a  promise  and  its  fulfilment  began  to  fade  out 
of  the  minds  of  the  people ;  there  had  always  been  bank 
bills  circulating  as  money  in  the  country ;  these  had  been 
called  "  dollars  "  equally  with  the  coin ;  and  in  December, 
1869,  a  test  case,  Hepburn  versus  Griswold,  was  decided 
by  the  Supreme  Court  on  the  question,  whether  Congress 
had  the  constitutional  authority  to  make  anything  but 
gold  and  silver  lawful  money  in  satisfaction  of  contracts 
entered  into  before  the  first  legal-tender  Act  was  passed.  The 
question,  Can  Congress  make  such  notes  a  legal  tender 
for  contracts  made  after  the  passage  of  the  Act?  was  not 
involved  in  this  case ;  but  it  was  very  clear  from  the 
Opinion  of  the  court  delivered  by  Chief  Justice  Chase, 
that  the  majority  of  the  justices  regarded  the  Act  as  being 


COMMERCIAL   CREDITS.  357 

unconstitutional  in  its  application  to  contracts  made  after 
as  well  as  before  the  Act  was  passed.  Upon  the  special 
question  before  the  Court,  the  justices  were  divided  in 
opinion ;  five,  including  the  Chief  Justice,  agreed  that  the 
Act  was  invalid  so  far  as  it  made  the  notes  a  legal  tender 
011  contracts  executed  prior  to  its  enactment;  and  the  three 
other  judges  were  of  the  opinion  that  it  was  valid.  Of 
course,  the  Decision  of  the  Court  was  rendered  by  a 
majority  of  two,  that  the  Act  was  unconstitutional. 
Chase,  Nelson,  Grier,  Clifford,  and  Field  constituted  the 
majority;  Miller,  Swayne,  and  Davis,  the  minority. 

Salmon  P.  Chase  was  one  of  the  greatest  men  of  the 
great  period  of  the  Civil  War.  He  was  Secretary  of  the 
Treasury  at  the  time  the  greenbacks  were  issued,  and  they 
were  issued  at  his  instance  and  advice,  but  he  was  opposed 
to  the  clause  that  made  the  notes  a  legal  tender.  He 
never  expressed  the  opinion  that  the  Legal-Tender  Acts 
were  constitutional,  nor  did  he  expect  that  the  notes,  of 
which  these  authorized  the  issue,  would  ever  become  a 
permanent  national  money.  This  is  evident  from  the  fact 
that  the  notes  were  made  fundable  at  his  instance,  not  so 
much  with  the  view  of  keeping  up  the  value  of  the  notes 
by  giving  them  a  present  market  in  bonds,  as  with  the 
view  that  they  would  help  the  sale  of  the  bonds  and  would 
be  absorbed  by  them  as  soon  as  the  price  of  the  bonds  was 
above  par  in  greenbacks.  Afterwards  'Mr.  Chase  thought 
that  this  fundability  of  the  notes  into  bonds  would  so  far 
take  up  the  notes  as  to  stand  in  the  way  of  the  negotiation 
of  further  necessary  loans  to  the  Government,  and  at  his 
instance  this  provision  of  the  law  was  repealed.  Conse- 
quently, there  was  nothing  inconsistent  between  his  posi- 
tion as  Secretary  and  his  later  position  as  Chief  Justice. 
He  was  undoubtedly  right  in  both  of  these  positions. 
The  making  the  greenbacks  legal  tender  did  not  probably 


358  PRINCIPLES   OF   POLITICAL  ECONOMY. 

add  one  particle  to  their  purchasing-power,  but  rather  the 
reverse,  because  that  feature  implied  a  doubt  on  the  part 
of  Congress  itself  as  to  the  validity  and  currency  of  such 
national  promises-to-pay.  That  he  was  also  right  in  his 
judicial  opinion  and  decision,  however  subsequently  over- 
ruled in  his  own  Court,  may  be  safely  left  to  the  inevitable 
future  appeal  to  common  sense  and  to  the  common  prin- 
ciples of  constitutional  interpretation. 

This  judgment  in  Hepburn  versus  Griswold  was  favor- 
ably received  by  the  country  at  large,  as  being  just  in  the 
line  of  the  great  decisions  of  Chief  Justice  Marshall,  and 
as  being  exactly  in  accordance  with  Amendment  X  of  the 
Constitution,  namely,  "  THE  POWERS  NOT  DELEGATED  TO 
THE  UNITED  STATES  BY  THE  CONSTITUTION,  NOR  PRO- 
HIBITED BY  IT  TO  THE  STATES,  ARE  RESERVED  TO  THE 

STATES  RESPECTIVELY,  OR  TO  THE  PEOPLE."  The  State 
of  Massachusetts  particularly,  which  has  always  main- 
tained and  still  maintains  a  strong  doctrine  of  State 
Rights  as  over  against,  though  in  harmony  with,  the 
Rights  of  the  United  States  under  the  Constitution, 
applauded  this  judgment  as  sound  in  law  and  politics,  and 
as  righteous  altogether.  But  the  then  administration  of 
General  Grant,  inexperienced  alike  in  law  and  politics,  and 
linked  in  entangling  alliances  with  the  great  corporations 
of  the  country,  received  the  Decision  with  marked  dissat- 
isfaction ;  and  it  was  especially  offensive  to  the  huge  rail- 
road companies,  whose  bonds  had  been  executed  prior  to 
Feb.  25,  1862,  inasmuch  as  it  made  the  principal  and 
interest  of  these  bonds  payable  in  coin,  which  they  had 
hoped  to  pay  off  in  the  depreciated  greenbacks,  made 
legal  tender  for  all  debts. 

The  Administration  lost  no  time  in  trying  to  bring 
about  by  fair  means  or  foul,  a  reversal  of  this  unwelcome 
decision.  E.  R.  Hoar  of  Massachusetts,  at  that  time  attor- 


COMMERCIAL   CREDITS.  359 

ney-general  in  Grant's  Cabinet,  was  the  principal  agent  in 
accomplishing  this  end  by  means  so  discreditable  that  he 
lost  in  consequence  his  popularity  in  Massachusetts  and  all 
chance  of  further  political  preferment.  The  means  chosen 
and  put  into  effect  was  the  appointment  by  the  President 
of  two  new  judges,  Strong  and  Bradley,  the  first  to  take  the 
place  of  Grier,  resigned,  and  the  second  appointed  under  a 
law  increasing  the  number  of  judges  to  nine,  whose  opin- 
ions on  the  point  at  issue  were  known  beforehand,  and 
who  were  selected  to  serve  on  that  very  account.  "  It  was 
no  secret,  indeed  it  was  a  matter  of  public  notoriety,  that 
these  justices  were  appointed  in  order  that  the  decision  of 
1869  might  be  reversed.  Their  opinions  in  regard  to  the 
constitutionality  of  the  Legal-Tender  Acts  had  been  clearly 
and  publicly  expressed.  It  was  therefore  pretty  well  known 
what  the  decision  would  be  when  the  question  was  again 
presented"  (Hugh  McCulloch.) 

The  second  Legal-Tender  case,  accordingly,  that  of 
Knox  versus  Lee,  decided  in  December,  1870,  reversed  the 
judgment  of  a  year  before,  no  new  points  therefor  being 
raised  either  by  the  new  judges  or  by  counsel  in  the  new 
trial,  the  Chief  Justice  and  his  three  former  associates  still 
adhering  to  their  original  opinions.  It  was  then  five 
judges  to  four,  the  special  question  being,  Is  it  constitu- 
tional to  make  promises-to-pay  a  legal  tender  on  contracts 
executed  before  the  promises  were  issued  ?  The  judicial 
answer  was  in  this  case,  Yes ;  provided  Congress  regarded 
such  action  as  a  necessary  means  of  preserving  the  Gov- 
ernment in  time  of  War,  or  any  other  period  of  extraor- 
dinary emergency.  That  is  to  say,  bona  fide  creditors  were 
constitutionally  bound  to  receive  depreciated  notes  as  legal 
tender  in  satisfaction  of  contracts  entered  into  when  no 
notes  were  in  existence ;  to  receive  on  contracts  specifi- 
cally calling  for  "  dollars  "  the  depreciated  notes  of  the  Gov- 


860  PRINCIPLES   OF   POLITICAL  ECONOMY. 

ernment  merely  promising  to  pay  "  dollars"  but  on  which 
the  "  dollars  "  could  not  be  obtained !  What  is  that,  but 
the  monstrous  incongruity  that  a  promise  is  the  same 
thing  legally  as  its  fulfilment?  What  is  that  but  judi- 
cial blindness  as  to  the  nature  of  Credit?  What  is  it  but 
the  old  confusion  between  names  and  things  ?  What  is  it, 
finally,  but  the  dazed  and  hazy  vision,  pardonable  perhaps 
in  the  popular  mind  but  half-opened  to  radical  distinc- 
tions, but  unpardonable  in  learned  men  professing  to  lay 
down  the  law  in  a  civilized  country  ? 

It  is  scarcely  needful  to  add,  that  the  Supreme  Court  of 
the  United  States  suffered  in  the  judgment  of  good  citi- 
zens by  that  transaction ;  that  the  best  legal  and  financial 
opinion  of  the  country  yielded  little  respect  to  a  decision 
thus  secured;  arid  that  intelligent  people  do  not  believe 
that  constitutional  law  can  sanction  what  contravenes  at 
once  common  sense  and  common  morality. 

Judge  Field  (and  his  memory  the  country  will  not  wil- 
lingly let  die),  one  of  the  majority  in  the  first  decision,  and 
writing  the  opinion  of  the  dissenting  minority  in  the  sec- 
ond, used  this  strong  but  just  language,  "It  follows,  then, 
logically,  from  the  doctrine  advanced  by  the  majority  of  the 
Court  as  to  the  power  of  Congress  over  the  subject  of  legal 
tender,  that  Congress  may  borrow  gold  coin  upon  a  pledge  to 
repay  gold  at  the  maturity  of  its  obligations,  and  yet  in  direct 
disregard  of  its  pledge,  in  open  violation  of  faith,  may  com- 
pel the  lender  to  take,  in  place  of  the  gold  stipulated,  its  own 
promises  ;  and  that  legislation  of  this  character  would  not  be 
in  violation  of  the  Constitution,  but  in  harmony  with  its  let- 
ter and  spirit.  What  is  this  but  declaring  that  repudiation 
by  the  G-overnment  of  the  United  States  of  its  solemn  obliga- 
tions would  be  Constitutional  ?  " 


MONEY.  361 


CHAPTER  V. 

MONEY. 

THE  subject  of  Money  presents  few  difficulties,  or  rather 
none  of  any  depth,  to  one  who  has  thoroughly  mastered 
the  subject  of  Value.  To  all  others  the  difficulties  are 
insuperable.  Essay  after  essay  and  volume  after  volume 
has  been  written  in  this  country  upon  Money,  by  men 
who  would  have  become  good  economists  and  good  mon- 
etaries,  if  they  had  only  begun  their  inquiries  at  the  right 
place  and  followed  them  in  the  right  direction.  As  we 
saw  in  the  last  chapter  that  it  is  impossible  for  anybody  to 
understand  the  subject  of  Credit  without  first  comprehend- 
ing the  matter  of  Value,  so  we  shall  see  in  this  chapter- 
that  in  the  order  of  Nature  Value  precedes  Money,  and 
that  the  latter  can  only  be  learned  in  the  light  of  the 
former.  The  logical  reason  for  this  in  general  is,  that 
Money  itself  is  always  a  Valuable,  and  comes  to  its  func- 
tion as  money  only  through  a  comparison  of  itself  with 
other  Valuables. 

The  thin  difficulties  that  confront  the  student  of  Money, 
who  has  reached  the  topic  along  the  proper  highway  cast 
up  for  economical  inquiries,  arise  apparently  from  two 
sources  ;  and  we  will  begin  our  present  discussion  by  first 
looking  at  these  in  their  order. 

In  the  first  place,  Money  is  the  only  Valuable  that  may 
belong  to  two  out  of  the  three  possible  categories  into 
which  Valuables  may  be  scientifically  thrown.  All  Valu- 


362  PRINCIPLES   OF   POLITICAL  ECONOMY. 

ables  are  either  Commodities,  or  Services,  or  Credits. 
These  categories  never  change  places.  Once  a  Commod- 
ity always  a  commodity,  so  long  as  value  can  be  predicate 
of  it ;  a  personal  Service  can  never  take  on  any  other  valu- 
able form ;  and  a  Credit  is  ever  a  credit,  and  nothing  else, 
until  it  is  annihilated  by  Fulfilment.  Now  Money  is  the 
only  Valuable  that  ever  appears  in  two  of  these  forms. 
The  same  Dollar  indeed  cannot  be  both  a  Commodity  and 
a  Credit ;  but  some  Dollars  are  a  Commodity  cut  out  from 
gold  and  silver,  and  some  other  Dollars  (so-called)  are  a 
Credit  issued  by  Government  or  parties  responsible  to 
government;  while  Money  as  a  general  term  properly 
enough  covers  both  kinds  of  Dollars,  the  Commodity-Dol- 
lar and  the  Credit-Dollar.  In  other  words,  Money  is  of 
two  kinds,  and  only  two  kinds,  either  a  Piece  of  valuable 
metal  stamped  as  to  weight  and  fineness  by  the  image  and 
inscription  of  Csesar,  —  a  Commodity ;  or  a  Promise  to  pay 
to  somebody  some  of  these  pieces,  —  a  Credit.  This  unique 
peculiarity  of  Money,  by  which,  always  a  Valuable,  it  may 
appear  and  does  appear  in  two  out  of  three  possible  pre- 
dicaments of  Valuables,  makes  a  little  difficulty  at  the 
outset  of  its  discussion,  and  requires  continued  care  in 
formulating  its  scientific  propositions. 

In  the  second  place,  a  more  considerable  difficulty,  and 
yet  a  slight  one  still,  is  found  in  the  fact  that  the  choices 
and  the  legislations  of  men  have  more  to  do  in  shaping 
the  propositions  of  Money  than  in  most  other  economical 
propositions.  It  is  true,  that  Nature  and  men  cooperate 
in  the  determination  of  every  case  of  Value  whatsoever ; 
while  there  is  a  difference  in  the  cases,  though  perhaps  not 
a  distinction,  in  respect  to  the  fixedness  and  universality 
of  the  natural  laws  involved,  in  contrariety  to  the  purely 
human  impulses  concerned.  The  Providential  elements 
in  Economics,  both  the  social  and  the  physical,  are  of 


MONEY.  363 

course  relatively  fixed  and  unchangeable,  otherwise  Science 
could  not  grapple  with  and  classify  them ;  and  so  also  are 
those  principles  of  Human  Nature  related  to  exchanges, 
which  may  be  said  to  be  universal  in  their  character,  — 
such  as,  for  example,  the  preference  to  receive  a  larger 
rather  than  a  less  return-service,  and  to  render  a  smaller 
rather  than  a  larger  effort;  and  at  the  same  time  there 
are  other  principles  of  human  nature  related  to  exchanges 
much  more  variable  in  their  character  than  these,  such,  for 
instance,  as  the  nation's  choice  of  the  kind  of  Money  it 
will  use,  or  the  kind  of  Taxation  it  will  impose.  It  cer- 
tainly follows  from  this,  that  some  Economical  laws  must 
be  more  general  than  others,  owing  to  a  less  variation  in 
the  human  impulses  concerned  in  them  :  it  follows,  for 
example,  that  the  law  of  landed  rents,  or  the  law  of  the 
approach  of  the  price  of  raw  materials  to  that  of  the  fin- 
ished products,  is  more  universal  in  its  terms  of  generaliza- 
tion than  most  of  the  propositions  of  Money  and  Taxation 
can  be. 

It  seems  like  a  paradox,  that  those  parts  of  Economics 
in  which  the  human  elements  of  variable  choice  may 
predominate  over  the  relatively  fixed  laws  of  nature  and 
of  mind,  should  be  just  the  parts  hardest  for  men  to  catch 
clearly  and  hold  firmly ;  because,  we  naturally  think,  that 
difficulty  and  mystery  are  rather  to  be  found  in  those 
departments  in  which  an  Infinite  Mind  has  been  at  work 
upon  an  infinite  plan,  and  that  there  is  no  such  profundity 
in  the  works  of  men ;  but  after  all,  even  those  natural 
laws  like  Gravitation,  which  are  clear  and  universal  as 
laws,  if  they  be  such  as  the  devices  of  men  have  to  do 
with,  such  as  may  be  modified  and  in  a  certain  sense 
controlled  by  human  actions,  become  from  that  very 
circumstance  liable  to  some  difficulty  and  perhaps  to  some 
mystery.  Now  all  the  truths  of  Money,  and  as  we  shall 


364  PRINCIPLES   OF   POLITICAL   ECONOMY. 

see  in  the  final  chapter  all  the  truths  of  Taxation  also, 
belong  to  this  class  of  less  general  generalizations ;  still, 
it  is  scarcely  less  than  foolish  to  say,  that  Money  is  such 
an  elusive  and  ideal  agent  that  nobody  can  understand  it. 
That  is  the  language  of  indolence  and  lack  of  penetration. 
Money  is  wholly  a  matter  of  man's  device,  though  it  conies 
into  constant  contact  with  something  greater  and  more 
fixed  than  itself ;  it  was  invented,  just  as  any  other  in- 
strument is  invented,  to  accomplish  a  certain  economical 
purpose  ;  and  it  would  be  strange  indeed  if  men  by  taking 
pains  could  not  perfectly  comprehend  what  men  them- 
selves have  wholly  devised.  We  hope,  accordingly,  in 
the  following  paragraphs  to  clear  up  completely  to  all 
intelligent  readers  the  whole  doctrine  of  Money.  The 
key  to  unlock  all  the  superficial  difficulties  (and  there 
are  no  others)  is  this  :  Money  is  always  a  Valuable  before 
it  becomes  money,  and  continues  a  valuable  independently 
of  the  fact  that  it  is  money ;  and,  it  is  always  one  or  other 
of  two  kinds,  either  itself  a  Commodity  or  a  Promise  to 
pay  a  commodity.  In  this  chapter,  we  will  not  begin 
with  definitions  and  justify  them  afterwards,  but  will 
come  up  to  them  step  by  step,  and,  as  it  were,  justify  them 
beforehand. 

1.  Economical  Exchanges  may  begin,  be  profitable  to 
both  parties,  and  go  forward  to  a  certain  extent,  without 
the  use  of  any  money  at  all.  As  a  matter  of  fact  and 
probably  for  a  long  time,  while  the  Civilizations  were 
gathering  their  inchoate  forces  for  a  further  progress,  men 
exchanged  one  Service  directly  for  another  without  the 
intervention  of  any  medium.  This  form  of  trade  is  called 
Barter.  King  Hiram  of  Tyre  furnished  to  King  Solomon 
of  Judea  a  certain  quantity  of  cedars  from  Mt.  Lebanon 
for  the  building  of  the  new  Temple  at  Jerusalem,  and 
Solomon  in  return  furnished  to  the  Tyrians  a  certain 


MONEY.  365 

quantity  of  wheat  and  oil,  Judea  being  a  fertile  agricul- 
tural country  with  no  forests,  and  Tyre  a  wooded  country 
with  no  farms.  This  may  well  serve  us  as  an  instance  of 
Barter,  although  Money  had  been  in  current  use  in  those 
regions  a  thousand  years  before,  as  is  seen  in  the  purchase 
by  Abraham  of  the  cave  and  field  of  Machpelah,  for  which 
he  weighed  out  "four  hundred  shekels  of  silver,  current 
money  with  the  merchants" 

It  is  obvious,  however,  that  while  Barter  is  a  good  deal 
better  than  no  exchanges  at  all,  there  are  inherent  and 
immense  difficulties  in  that  form  of  trade. 

(a)  Under  Barter  trade  is  extremely  limited  in  its 
personnel.  Only  those  parties  can  engage  in  it,  each  of 
whom  is  in  position  to  render  to  the  other  just  such  a 
Service  as  the  other  is  in  direct  and  immediate  need  of, 
and  each  of  whom  also  wants  another  Service  in  kind  and 
quantity  exactly  what  the  second  man  has  to  render.  It 
is  not  enough  under  these  conditions,  that  a  man  should 
have  some  Service  to  sell,  but  he  must  also  find  some 
other  man,  who  not  only  wants  that  specific  service  but 
who  also  has  some  service  to  render  in  return  just  such  as 
the  first  man  wants.  If  A  has  wheat  which  he  wishes  to 
exchange  for  a  coat,  he  must  first  find  a  party  desiring 
wheat  and  also  having  a  coat  to  sell,  and  moreover  who 
wants  just  as  much  wheat  as  will  pay  for  a  coat,  no  more 
and  no  less  ;  if  he  wants  more,  he  may  have  nothing  to 
render  for  the  excess  which  A  is  willing  to  accept ;  if  less, 
A  may  have  nothing  besides  wheat  with  which  to  help  pay 
for  the  coat.  Even  in  the  simpler  states  of  Society  the 
inconveniences  of  thus  hunting  up  a  specific  market  for 
each  specific  service  are  very  great,  and  in  more  advanced 
states  of  civilization  would  become  intolerable,  if  it  were 
possible  (as  it  is  not)  for  Society  to  become  advanced 
under  such  conditions. 


366  PKINCIPLES   OF  POLITICAL  ECONOMY. 

(b)  Barter  presents   insuperable  obstacles  to  trade  in 
point  of  place.    While  men  still  exchanged  in  kind,  as  it  is 
called,  and  knew  110  other  mode,  the  purchasing-power  of 
any  Service  was  necessarily  confined  to  that  locality,  and 
would  not  be  parted  with   except  in  view  of  a  return 
service  actually  there  present  in  the  same  place.     There 
could  be  no  commercial  contact  without  a  local  contact. 
The  ultimate   parties  to  every  exchange  must  come  to- 
gether face  to  face.     There   could  be  no  middle-men  or 
distributors.       The    market    was    circumscribed    to    the 
hamlet. 

(c)  Buying  and  selling  under  the  scheme  of  Barter  is 
also  wretchedly  limited  in  point  of  time.     The  fruit-dealer, 
for  example,  must  dispose  of  his  product  quickly,  or  it 
perishes  on  his  hands.     So  of  many  other  commodities. 
If  they  are  to  be  sold  at  all,  they  must  be  sold  quick. 
The  ultimate  buyer  must  be  on  hand  in  time.     As  the 
result  of  these  three  concomitants  of  Barter,  ten  thousand 
things  that  are  now  bought  and  sold  to  profit  never  came 
to  a  market  or  thought  of  a  market,  exchanges  were  so 
limited  in  time  and  place  and  variety,  human  associations 
were  so  hampered,  and  the  development  of  all  peculiar 
talents  so  impeded,  that  one  of  the  initial  steps  in  the 
progress  of   all  Civilization  has  been   to  hit  upon  some 
expedient  to  lessen  these  intrinsic  difficulties,  and  so  to 
facilitate  Exchanges. 

2.  The  Invention  of  Money  was  nothing  in  the  world 
but  the  tentative  selection  by  certain  people  in  a  certain 
locality  of  some  Commodity  then  and  there  valuable,  that 
is,  capable  of  buying  some  things  then  and  there,  and 
gradually  giving  to  that  commodity  by  general  consent 
the  capacity  of  buying  all  things  then  and  there  salable. 
The  commodity  thus  slowly  becoming  money,  whatever  it 
was,  had  and  must  have  had  a  limited  purchasing-power 


MONEY.  367 

to  start  with,  because  no  instance  to  the  contrary  has  ever 
been  shown,  and  still  more  because  that  peculiar  com- 
parison between  two  things  that  lies  at  the  bottom  in  each 
single  case  of  Value  is  exactly  the  same  kind  of  compari- 
son that  holds  between  money  and  the  many  things  which 
money  purchases ;  given  a  valuable  in  common  use  as  a 
starting-point,  and  the  transition  is  easy  and  natural  to 
a  generalized  valuable,  that  is,  to  a  recognized  money ;  the 
relation  of  mutual  purchase  between  the  commodity  and  some 
other  things  was  a  common  fact  to  begin  with,  the  making 
it  money  was  merely  the  common  consent  that  thereafter  it 
should  have  a  general  purchasing-power  within  the  circuit ; 
so  that  as  a  simple  result,  whenever  anybody  had  anything 
to  exchange,  he  might  first  exchange  it  for  this  selected 
product,  which  was  valuable  before  but  is  now  generally 
valuable,  and  then  with  this  money-product  in  hand  he 
could  buy  whatever  he  might  want  at  any  time  or  place 
within  the  circuit. 

It  is  impossible  from  the  very  nature  of  Value,  impos- 
sible from  that  comparison  of  two  distinct  Services,  that 
precedes  every  Exchange,  as  well  under  Money  as  under 
Barter,  that  anything  except  a  valuable  anterior  to  and 
independent  of  its  becoming  money,  could  ever  have  be- 
come money  at  all.  Money  makes  no  alteration  in  any 
law  of  Value,  but  only  substitutes  for  convenience'  sake  in 
every  transaction  in  which  it  plays  a  part,  a  general  for 
a  specific  purchasing-power ;  a  book,  for  example,  has  a 
specific  purchasing-power,  since  there  is  somebody  who 
wants  it,  and  is  willing  to  give  a  sum  of  money  for  it;  and 
the  owner  of  the  book  by  the  sale  of  it  parts  with  a  product 
which  has  only  the  power  to  purchase  something  from  a 
few  persons,  and  receives  a  product  in  return  which  has 
the  power  to  purchase  something  from  all  persons  ;  it  is 
not  true  to  say  that  the  money  is  worth  more  than  the 


368  PRINCIPLES   OF  POLITICAL  ECONOMY. 

book,  because  they  are  just  worth  each  other,  as  is  demon- 
strated by  the  sale ;  but  it  is  true  to  say  that  the  seller 
of  the  book  has  substituted  in  the  place  of  a  limited 
purchasing-power,  of  which  he  was  proprietor,  a  general 
purchasing-power,  of  which  he  has  now  become  proprietor ; 
that  is,  that  the  command  of  the  money,  which  has  no 
larger  value  than  the  book  had,  does  carry  along  with  it  a 
superior  command  over  purchasable  articles  generally. 
In  one  word,  Value  in  the  form  of  money  is  in  a  more 
available  shape  for  general  buying  and  selling  than  value 
in  any  other  form.  This  is  the  exact  and  ultimate  expres- 
sion for  all  the  truth  there  is  in  the  common  vague  remark, 
namely,  that  Money  is  something  different  from  all  other 
Valuables ;  it  is  different  from  them  in  just  one  respect, 
namely,  while  they  have  the  power  of  buying  some  things 
from  some  persons,  it  has  the  power  derived  from  the  con- 
sensus of  Society  to  buy  all  sorts  of  things  from  all  sorts  of 
persons. 

This  simple  change  or  substitution,  which  seems  in 
itself  so  little  and  easy  and  natural,  has  changed  in  its 
ever-enlarging  results  the  face  of  the  world!  It  makes 
the  valuable  now  selected  to  be  money  seem  to  the  minds 
of  men  to  be  a  very  different  thing  from  what  it  was 
before,  although  the  change  in  itself  is  slight  indeed.  It 
removes  most  of  the  inconveniences  of  Barter  as  by  a 
stroke  of  the  hand.  So  soon  as  a  commodity  selected  to 
become  money  by  one  people  comes  to  be  acceptable  as 
such  to  all  other  peoples,  as  is  the  case  with  gold,  the 
advantages  of  its  use  are  vastly  multiplied  to  all.  Experi- 
ence has  shown  many  times  over,  and  reflection  will 
explain  to  any  one,  how  that  there  is  no  other  machine 
that  has  economized  labor  like  money;  no  other  instru- 
ment that  plays  so  deep  and  broad  a  part  in  Production  ; 
no  invention  whatever,  unless  it  be  the  invention  of  letters, 


MONEY.  369 

which  has  contributed  more  to  the  civilization  of  man- 
kind. Money  makes  vast  distances  relatively  indifferent ; 
for  it  is  sufficient  to  constitute  a  market  for  any  valuable 
that  it  is  practically  wanted  anywhere  on  the  round  globe, 
the  middle-man  paying  the  seller  for  it  in  money  transports 
it  thither,  and  receives  back  his  investment  with  a  profit 
from  the  ultimate  buyer.  So,  also,  money  generalizes  any 
purchasing-power  in  point  of  time.  The  dealer,  exchang- 
ing his  perishable  products  for  money,  may  keep  its  power 
of  purchase  locked  in  this  form  as  long  as  he  lists,  putting 
an  interval  at  his  own  pleasure  between  selling  and  buy- 
ing, and  with  this  generalized  power  in  his  pocket  he  may 
buy  when  he  will  and  what  he  will  and  where  he  will. 
Money,  too,  makes  any  purchasing-power  portable,  divisi- 
ble, and  loanable.  A  man  may  carry  the  value  of  his 
farm  in  his  purse,  and  may  divide  it  up  for  a  thousand 
different  purchases,  and  especially  is  able  to  loan  it  in  this 
form  in  order  to  receive  it  back  again  with  interest  at  a 
future  day. 

3.  It  is  important  to  notice  in  the  next  place,  that, 
whatever  made  the  commodity  selected  as  money  origi- 
nally desirable  and  valuable,  it  has  now  become  desirable 
and  valuable  for  other  and  wider  reasons.  The  tobacco  of 
Virginia,  for  example,  in  the  early  days  of  that  Colony, 
became  valuable  at  first  on  account  of  the  demand  for  it  as 
a  narcotic  both  there  and  in  England ;  but  as  soon  as  it 
was  made  a  legal  money  in  the  Colony  by  the  general 
consent  already  described,  its  value  depended  in  part  upon 
another  set  of  causes.  Of  course  Demand  and  Supply  still 
controlled  its  value  just  as  before,  only  certain  parties  who 
had  not  desired  it  before  as  a  mere  commodity  thereafter 
desired  it  as  a  current  money.  Its  convenience  and  neces- 
sity as  money  widened  the  circle  of  those  parties  willing  to 
receive  it  and  glad  to  render  a  return  for  it.  It  is  true, 


370  PRINCIPLES   OF   POLITICAL  ECONOMY. 

that  many  now  received  it  only  because  they  could  pay  it 
out  again  to  buy  something  else  with ;  but  that  made  no 
difference  so  far  as'  Value  is  concerned ;  it  was  valuable 
before  under  a  certain  limited  demand,  and  continued  val- 
uable under  an  additional  and  broader  demand  ;  we  cannot 
certainly  say,  that  it  became  more  valuable  under  this  new 
and  wider  demand,  because  we  do  not  know  how  the  then 
combined  demand  affected  the  Supply.  We  may  probably 
say,  that  the  value  became  steadier  if  not  larger,  under  the 
double  demand  than  under  the  previous  single  one ;  and 
the  vital  point  to  mark  and  remember  is,  that  the  value  of 
money,  previously  valuable  as  a  commodity  only,  is  still 
maintained  under  the  law  of  Demand  and  Supply,  just  as 
all  other  values  are,  the  only  peculiarity  being  this,  namely, 
as  a  generalized  valuable  and  consequently  a  potent  social 
agent  money  is  in  demand  by  everybody  who  has  anything 
else  to  sell. 

It  follows  from  this  in  necessary  sequence,  that  Money 
as  such,  whatever  may  have  been  the  ground  of  its  origi- 
nal value  as  a  commodity,  is  always  received  as  money  in 
order  to  be  parted  with.  It  is  not  bought  for  its  own  sake 
to  be  used  and  enjoyed,  as  most  other  things  are,  but  is 
only  bought  to  be  sold  again.  Men  will  sell  everything  to 
buy  it,  with  the  sole  intent  to  sell  it  again  to  buy  some- 
thing else ;  and  the  odd  thing  about  it  is,  that  everybody 
buys  it  to  sell  again,  not  at  all  as  the  speculator  buys  grain 
to  sell  it  again  at  a  higher  price  by  the  bushel  or  centner, 
but,  the  money  remaining  constant  in  their  minds,  they 
sell  for  it  something  they  care  less  about  in  order  to  buy 
with  it  something  they  care  more  about.  Money,  there- 
fore, becomes  a  medium  in  men's  exchanges.  The  word 
"  medium  "  in  this  proposition  is  to  be  taken  in  its  etymo- 
logical and  strict  sense,  as  something  that  comes  between 
two  extremes  and  serves  also  to  relate  them  to  each  other. 


MONEY.  371 

This  is  not  the  ultimate  characteristic  of  Money,  as  we 
shall  see,  nor  can  a  final  definition  be  founded  here,  but  it 
is  a  good  step  towards  ultimates  to  see  that  money  is  ex- 
changed for  other  things  as  a  means  and  not  as  an  end,  that 
it  is  a  great  help  in  exchanging  all  other  valuables  but  is 
never  exchanged  for  itself  in  an  ultimate  transaction. 

Small  boys,  indeed,  sometimes  swop  cents  ;  but  men,  the 
miser  excepted,  who  is  under  a  deplorable  fallacy  of  the 
senses,  use  and  estimate  money  mainly  as  the  medium  that 
facilitates  the  real  exchanges  of  Society.  What  is  actually 
and  ultimately  exchanged  is  the  wheat,  the  cloth,  the  lum- 
ber, the  furniture,  the  commercial  service  of  every  kind, 
and  Money  is  but  the  instrument  making  those  exchanges 
easy,  which  might  perhaps  go  on  in  part  without  it,  though 
with  difficulty  and  loss.  In  short,  money  is  somewhat  like 
a  railroad  ticket.  Transportation  to  a  given  place  is  what 
is  really  bought  when  one  pays  for  a  railroad  ticket.  The 
proof  of  the  purchase  is  the  bit  of  paper  exhibited.  That 
comes  in  as  a  medium  between  the  traveller  and  the  rail- 
road company ;  and  while  it  facilitates  the  real  exchange, 
it  also  partly  disguises  it.  This  comparison  holds  good  in 
the  main  feature,  but  in  two  respects  the  resemblance  fails  : 
Money  is  not  a  specific  ticket  for  a  single  purpose,  as  the 
pasteboard  is,  but  is  a  general  ticket  (so  far  as  it  goes),  for 
all  purposes  of  purchase ;  and  secondly,  Money  really 
stands  as  a  value  in  its  own  right  (so  far  as  any  single 
thing  can  so  stand)  at  the  same  time  it  is  serving  as  a 
medium,  while  the  railroad  ticket  does  not.  Still,  we  are  all 
desirous  to  get  money,  not  for  the  sake  of  the  money  itself, 
but  for  the  sake  of  those  things  which  the  money  will  buy. 
We  part  with  money  freely  and  constantly  for  those  things 
which  we  care  more  about.  What  we  exactly  care  for  is 
what  our  money  will  buy,  is  the  conscious  command  over 
all  services  and  commodities  which  the  possession  of  money. 


372  PRINCIPLES   OF  POLITICAL  ECONOMY. 

insures  to  us.  If  we  could  give  our  own  commodity  or 
service  or  claim,  whatever  it  may  be,  and  receive  directly 
in  return  the  claim  or  commodity  or  service  which  we 
want,  whatever  that  might  be,  there  would  be  no  need  of 
money  at  all ;  but  this  is  always  inconvenient,  and  gener- 
ally impossible  ;  and,  therefore,  we  introduce  a  middle  term, 
and  money  is  found  to  be  a  good  mean  to  help  exchange 
the  two  extremes. 

4.  We  are  now  getting  on  towards  a  just  conception 
and  a  true  definition  of  Money,  though  two  or  three  more 
points  must  still  be  noted  as  preparatory  to  that  consum- 
mation. As  a  result  of  the  fact  already  reached,  that 
money  serves  as  a  medium  in  men's  exchanges,  it  follows 
of  course  that  the  power  of  money  as  such  a  medium  is 
multiplied  by  what  has  been  called  rapidity  of  circulation, 
that  is,  a  brisker  use  of  the  volume  already  in  circulation 
will  reach  the  same  end  as  the  increase  of  its  volume.  As 
in  mechanics,  so  in  money,  the  whole  power  is  the  product 
of  mass  and  velocity.  Money  also  is  like  any  other  tool, 
the  more  constant  its  use  the  more  profitable  its  agency. 
The  quick  movement  of  a  small  mass,  accordingly,  is  better 
than  the  torpid  movement  of  a  large  mass,  both  in  what 
it  saves  of  expense,  and  in  what  it  presupposes  of  the  gen- 
eral conditions  of  exchange.  The  value  of  the  money- 
volume  of  any  country  is  a  small  fraction  of  the  aggregate 
value  of  those  products  which  the  money  helps  directly  to 
exchange ;  and  a  very  small  fraction  indeed  of  the  aggre- 
gate value  of  all  the  products  which  it  helps  indirectly  to 
exchange  through  Credit  by  means  of  its  denominations. 
We  shall  see  better  a  little  farther  on,  that  Money  works 
not  only  as  a  medium  direct,  itself  exchanged  against  other 
Services,  but  also  as  furnishing  those  denominations  of 
Value,  like  the  dollar,  which  are  always  used  in  bargain- 
ing ;  and  also  used  in  all  cases  of  Credit,  in  which  settle- 


MONEY.  373 

ment  is  not  made  by  money  but  by  offsetting  one  piece  of 
indebtedness  against  another,  and  these  denominations  can 
arise  only  from  the  use  of  money  as  a  direct  medium. 
Therefore,  we  may  say  that  the  hub  and  the  spokes  and 
the  rim  of  the  wheel  of  exchange  consist  of  personal  ser- 
vices and  commercial  credits  and  all  material  commodities 
except  money,  while,  to  borrow  the  famous  comparison  of 
Hume,  "  Money  is  but  the  grease  which  makes  the  wheel 
turn  easier."  It  would  be  a  vast  mistake  to  suppose,  as 
some  of  the  ancients  did,  that  the  grease  is  really  the 
wheel. 

While  Money  thus  facilitates  the  revolution  of  the 
wheel  of  Exchange,  it  follows  too  from  its  nature  as  a 
medium,  that  the  dimensions  of  the  wheel  as  a  whole  are 
vastly  greater  than  they  would  have  been  but  for  the 
Money.  Money  indeed  helped  to  exchange  the  products 
that  already  existed  and  were  coming  into  existence  at  its 
first  invention,  but  by  far  the  largest  part  of  products  since 
have  come  into  existence  largely  through  the  agency  of 
Money.  We  get  quite  too  low  a  view  of  the  functions  of 
this  potent  agent,  if  we  think  of  it  merely  as  an  aid  in  cir- 
culating products,  that  would  have  existed  whether  or  no ; 
some  products  would  certainly  have  existed  whether  or 
no,  and  money  would  surely  be  of  great  use  and  conven- 
ience in  helping  bring  these  to  the  ultimate  consumers ; 
but  this  is  a  partial  and  wholly  inadequate  view  of  the 
function  of  Money  as  a  medium  of  exchange.  The  fact 
that  such  a  medium  is  in  universal  circulation,  and  that 
the  present  holders  of  it  are  ready  to  exchange  it  against 
any  sort  of  Services  adapted  to  gratify  their  desires,  exer- 
cises a  kind  of  creative  power,  and  brings  a  thousand 
products  to  the  market  which  would  otherwise  never  have 
come  into  existence.  Since  money  will  buy  anything,  men 
are  on  the  alert  to  bring  forward  something  which  will  buy 


374  PRINCIPLES   OF   POLITICAL  ECONOMY. 

money;  and  since  Money  is  divisible  into  small  pieces,  an 
incredible  number  and  variety  of  small  services  are  brought 
forward  to  be  exchanged  against  these  pieces,  for  example, 
into  railroad  cars  and  fares  of  all  sorts,  which  services  we 
have  no  reason  to  suppose  would  ever  be  brought  forward 
at  all  were  it  not  for  the  strong  attraction  of  the  money. 

5.  From  this  last  point  of  view  we  may  gain  another 
closely  connected  with  it,  namely,  that  Money  must  be  a 
very  important  part  of  the  Capital  of  the  world.  We 
have  already  thoroughly  learned  that  Capital  is  any 
product  outside  of  man  himself  from  whose  use  springs  a 
pecuniary  increase.  Now  any  one  may  see  that  the  mone- 
tary medium  of  any  country  is  the  most  active  and  the 
most  essential  and  the  most  profitable  of  all  those  instru- 
ments reserved  in  aid  of  further  production.  The  axe,  the 
plough,  the  spindle,  the  loom,  the  wheel,  the  engine,  are 
all  instruments,  are  all  Capital,  and  they  each  aid  respec- 
tively some  part  or  parts  of  the  processes  of  Production ; 
but  Money  is  a  form  of  Capital  which  stimulates  and  facili- 
tates all  the  processes  of  Production  without  exception. 
Just  as  we  have  seen  that  Money  is  a  form  of  Value  gen- 
eralized, so  is  it  also  a  form  of  generalized  Capital,  that  is 
to  say,  it  is  an  instrument  capable  of  aiding  all  processes 
of  Production  in  every  department,  while  every  other  capi- 
talized instrument  is  capable  of  aiding  but  few  processes 
in  one  department.  Without  Money,  for  instance,  there 
could  be  no  thorough  Division  of  Labor,  because  there 
would  be  no  adequate  means  of  estimating  or  rewarding 
each  one's  share  in  a  complicated  process.  By  means  of 
Money  all  services  small  or  great  contributing  towards  a 
common  product  are  neatly  measured,  and  may  be  paid  for 
by  some  one,  who  thereby  becomes  proprietor  of  the  whole 
product ;  or,  if  the  contributors  choose,  they  may  wait  till 
the  product  itself  is  sold,  and  then  the  money  received  is 


MONEY.  375 

divisible  without  loss  to  each  contributor,  according  to  the 
service  rendered.  Thus  the  influence  of  Money  as  Capi- 
tal pervades  the  whole  field  of  Exchange  from  centre  to 
circumference,  facilitating  every  transfer  and  stimulating 
new  transfers. 

Now  then,  if  Money  be,  as  it  is,  a  peculiar  kind  of  Capi- 
tal, since  it  is  a  Medium  in  all  Exchanges,  the  question 
becomes  pertinent,  How  much  of  it  is  wanted  ?  Clearly, 
only  so  much  as  will  serve  the  purposes  which  such  a 
medium  is  fitted  to  subserve  ;  there  should  be  enough  fairly 
to  mediate  between  the  Services  actually  ready  to  be  ex- 
changed then  and  there,  and  also  enough  fairly  to  call  out 
other  Services  proper  and  profitable  in  the  then  circum- 
stances of  Society,  and  whose  only  obstacle  to  a  profitable 
exchange  then  and  there  is  a  lack  of  a  facilitating  medium. 
All  increase  of  the  volume  of  money  beyond  this  point, 
which  the  very  nature  of  Money  itself  marks  out  as  the 
boundary,  leads  to  a  diminution  of  Value  of  every  part  of 
it,  to  a  consequent  disturbance  of  all  existing  monetary 
contracts,  to  a  universal  rise  of  prices  which  are  illusory 
and  gainless,  to  unsteadiness  and  derangement  in  all  legiti- 
mate business,  and  to  a  spirit  of  restless  enterprise  and 
speculation  which  seeks  to  draw  off  the  excess  of  money 
in  untried  and  reckless  experiments.  The  only  real  sub- 
jects of  Exchange  are  mutual  efforts,  mutual  services,  as 
these  are  expressed  in  Commodities  and  Services  and 
Credits,  and  money  is  the  instrument  merely  that  comes  in 
between  the  real  exchanges  to  facilitate  them  ;  and,  there- 
fore, it  seems  to  be  perfectly  conclusive  on  this  point  to 
remark  that  the  quantity  of  money  needed  in  any  country 
or  the  whole  world  is  limited  by  the  number  of  the  ser- 
vices ready  to  be  exchanged,  to  make  easy  the  exchange  of 
which  is  the  good  purpose  and  sole  end  of  Money. 

The  physical  and  mental  powers  of  man,  which  alone 


376  PRINCIPLES   OF   POLITICAL   ECONOMY. 

can  give  birth  to  commercial  services,  when  considered  as 
they  must  be  in  this  connection  as  belonging  to  a  given 
number  of  men  at  a  given  time  and  place,  are  strictly 
limited  of  course;  and  although  the  presence  of  money 
then  and  there  is  both  a  stimulus  and  an  aid  to  all  these 
men  to  bring  forward  services  of  all  sorts  to  the  market, 
there  are  obvious  restrictions  both  in  their  powers  and  in 
their  circumstances ;  and  the  quantity  of  money  needed 
among  them  is  just  that  quantity  which  will  fairly  act  as 
a  medium  in  exchanging  the  services  which  they  are  able 
and  willing  to  render  to  each  other.  All  increase  in  the 
quantity  of  money  beyond  that  point  would  have,  and 
could  have,  the  only  effect  of  increasing  the  nominal  Prices 
of  Services,  without  making  the  services  themselves  any 
greater  in  number  or  better  in  quality. 

It  is  with  Money  exactly  as  it  is  with  any  other  form  of 
Capital,  allowance  being  made  for  the  fact  that  Money  is  a 
kind  of  generalized  capital.  To  illustrate,  How  many  ships 
does  a  commercial  nation  need  to  employ  ?  As  many  as  will 
fairly  take  off  its  exports  and  bring  in  its  imports.  Ships 
are  wanted  for  one  definite  purpose  ;  and  when  enough  are 
secured  to  answer  that  purpose,  all  additions  will  lessen  the 
Value,  that  is,  the  purchasing-power,  of  ships  generally. 
So  of  all  instruments  whatever.  Enough  is  as  good  as  a 
feast.  Enough  is  better  than  more.  In  regard  to  every  form 
of  Capital,  and  consequently  in  regard  to  Money  as  such,  the 
point  of  sufficiency  is  determined  by  the  quantity  of  work 
to  be  done.  And  as  no  law  of  Congress  is  required  to 
determine  how  many  ships  are  best  to  do  the  transportation 
for  the  people  of  the  United  States,  so  no  legislation  is 
needed  to  fix  the  amount  of  Money  that  is  best  for  the 
same  people,  or  for  any  people.  As  the  people  find  out 
for  themselves  how  many  steam-engines  they  want  to  do 
their  work  of  the  year,  so  they  find  out  without  any  aid 


MONEY.  377 

from  their  legislators  how  much  money  they  want  to  make 
their  exchanges  of  the  year.  The  less  Law  and  the  more 
Liberty  on  all  such  points  the  better  for  all  concerned. 

Let  the  reader  notice  in  passing,  as  a  corollary  from 
what  has  just  been  shown,  that  when  forms  of  Credit  like 
bank  cheques  come  into  growing  use  to  make  payments 
with  and  settle  balances,  they  displace  to  a  large  extent 
commodity-moneys,  like  gold  and  silver,  which  would  other- 
wise have  to  be  employed.  Speculations,  and  even  scien- 
tific discussions,  over  the  needful  amounts  of  gold  and 
silver  for  money  in  the  United  States,  have  usually  over- 
looked this  essential  consideration  of  displacement ;  and 
one  result  of  this  has  doubtless  been  too  large  a  coinage  of 
the  precious  metals,  to  the  hazard  of  their  stable  value, 
and  especially  to  the  hazard  of  the  permanent  maintenance 
of  the  gold  standard.  Men  forget  in  their  zeal  for  Money 
that  it  is  nothing  but  a  Tool,  and  that  the  multiplication 
of  tools  beyond  the  amount  of  work  to  be  done  by  means 
of  them  always  makes  the  tools  a  drug ;  and  they  are  apt 
to  forget  also  that  the  cheaper  and  more  convenient  sub- 
stitutes for  metallic  moneys,  namely,  forms  of  Credit,  are 
all  the  time  and  more  and  more  taking  the  place  of  the 
older  moneys,  which,  nevertheless,  must  still  be  kept  at 
the  foundation,  though  a  lessened  quantity  of  them  be 
needful  for  circulation. 

6.  We  must  now  carefully  sink  our  analysis  one  grade 
deeper,  in  order  to  reach  the  bottom  characteristic  of 
Money,  and  so  to  formulate  an  ultimate  definition  of  it. 

The  only  quality  common  to  all  valuable  things  is  the 
fact  that  they  are  all  salable;  and  if  these  various  and 
multitudinous  valuables  are  ever  to  be  made  in  any  way 
commensurable  with  each  other,  it  must  be  by  means  of 
one  of  their  number  assumed  as  a  standard  of  comparison 
with  the  rest.  Comparisons  can  only  turn  on  points  of 


378  PRINCIPLES   OF   POLITICAL  ECONOMY. 

likeness.  The  single  respect  in  which  all  valuables  what- 
soever resemble  each  other  is  their  common  possession  of 
purchasing-power,  be  it  more  or  less.  Therefore,  as  a 
yardstick,  itself  possessed  of  length,  and  because  it  is  pos- 
sessed of  length,  if  assumed  as  a  standard  of  comparison 
with  other  objects  that  have  length,  may  be  used  to  meas- 
ure all  such  objects  whatsoever,  and  may  accurately  express 
in  units  or  fractions  of  itself  the  simple  length  of  anything 
and  everything ;  so,  any  valuable  may  be  selected  as  a 
standard  with  which  to  compare  all  other  valuables,  and 
by  means  of  the  terms  of  which  to  express  numerically 
the  reciprocal  relations  between  all  valuables  whatsoever. 
This  is  just  what  is  done  whenever  any  valuable  is  selected 
as  Money ;  and  this  is  the  exact  and  single  purpose  of  such 
selection. 

What  is  the  precise  change,  then,  in  the  valuable  chosen 
as  Money  when  it  becomes  money  ?  This  :  it  was  a  valu- 
able before,  else  it  could  not  by  any  possibility  serve  the 
present  purpose,  but  now  it  has  become  a  standard  valu- 
able, with  which  other  valuable  things  may  be  compared 
in  the  single  point  of  their  value.  Valuables  are  now 
commensurable.  That  is  all.  But  that  is  a  great  deal. 
As  we  have  already  learned  to  the  nail,  Valuables  are  all 
Services ;  and  now  some  one  Service  has  been  selected 
from  the  rest,  capable  in  its  very  nature  of  measuring  all 
the  rest,  and  so  capable  of  becoming  immensely  useful  to 
mankind. 

What,  accordingly,  is  the  bottom  characteristic  of 
Money  ?  And  where  shall  we  find  the  terms  for  an  immu- 
table definition  of  it  ?  The  core  of  Money  is  this  quality  of 
being  a  Measure  of  Services,  taken  on  in  addition  to  the 
usual  and  universal  qualities  constituting  anything  a  Valu- 
able. This  additional  quality  arises  under  the  choices  and 
action  of  men,  just  as  the  ordinary  qualities  constituting 


MONEY.  379 

anything  a  valuable  arise  under  the  choices  and  action  of 
men.  But  it  is  an  additional  quality,  distinctly  conferred, 
and  vastly  important.  The  valuable  chosen  as  Money  was 
a  Service  to  start  with,  was  constantly  rendered  as  such 
then  and  there,  and  was  consequently  fitted  by  qualities 
already  possessed  to  assume  a  further  and  a  unique 
quality,  namely,  the  capacity  to  measure  and  express 
relatively  to  itself  all  other  valuable  Services  whatever. 

As  each  and  every  Valuable  is  the  outcome  of  a  com- 
parison instituted  by  two  persons  as  between  two  things, 
as  is  thoroughly  unfolded  in  the  first  Chapter,  it  is  not  at 
all  strange,  rather  it  is  natural  and  inevitable,  that  there 
should  arise  in  connection  with  Valuables  as  a  whole  class 
some  such  further  comparative  measure,  as  Money  is  now 
shown  to  be ;  because,  without  some  such  common  measure 
of  Services  in  general,  itself  a  Service  of  the  same  kind,  it 
would  be  inconvenient,  not  to  say  impossible,  to  carry  on 
any  considerable  traffic  anywhere.  For  instance  :  a  baker 
has  only  loaves  of  bread,  and  wishes  to  buy  a  hat,  a  horse, 
a  house.  How  many  loaves  shall  he  give  for  each  ?  Un- 
less there  be  some  common  Service,  in  the  terms  of  which 
these  differing  Valuables  can  be  expressed,  and  by  means 
of  which  they  can  be  brought  into  commercial  relations 
with  each  other,  it  would  be  an  awkward  piece  of  business 
to  effect  even  the  three  exchanges;  and  every  time  the 
baker  wished  to  buy  another  article,  there  must  be  a  rude 
and  slow  calculation  from  independent  data,  in  order  to 
decide  upon  the  terms  of  the  exchange.  Let  now  some 
Common  Service  be  introduced,  in  the  terms  of  which  each 
of  these  values  can  express  itself  independently,  and  the 
difficulty  disappears  in  an  instant.  "  My  loaves  are  worth 
ten  cents  each,"  says  the  baker.  "My  hat  is  worth  ten 
dollars,"  says  the  hatter.  Their  saying  so  does  not  indeed 
make  it  so ;  that  matter  is  a  preliminary ;  but  each  has 


880  PRINCIPLES   OF   POLITICAL   ECONOMY. 

come  to  that  approximate  conclusion  by  a  relatively  easy 
comparison  of  two  Services,  his  own  and  another  common 
one ;  and  if  the  loaves  will  duly  bring  ten  cents  and  the 
hat  ten  dollars,  the  terms  of  their  own  exchange  are  one 
hundred  for  one,  and  there  is  no  need  of  parleying.  So  of 
the  rest;  so  of  everything  that  is  ever  bought  and  sold. 
Money  becomes  by  common  consent  a  Measure  of  them ; 
because  it  measures  them,  it  makes  the  interchange  of 
them  a  very  facile  matter;  because  it  measures  them,  it 
easily  becomes  a  medium  between  them ;  and,  accordingly, 
because  the  money  rendered  is  itself  a  Service,  it  is  a  nat- 
ural and  universal  measure  of  all  other  Services. 

MONEY  is  A  CURRENT  AND  LEGAL  MEASLTRE  OF  SER- 
VICES. With  this  final  definition  of  "  Money  "  the  writer 
is  more  than  willing  to  take  all  the  risks.  It  was  new 
when  propounded  many  years  ago  in  one  of  the  editions 
of  his  earlier  book.  All  subsequent  testings  of  it  in  form 
and  substance  have  but  confirmed  the  original  confidence 
in  it.  The  word  "  legal "  in  this  definition  is  not  always 
to  be  pressed  to  its  utmost  signification,  but  denotes  any- 
thing sanctioned  by  law  or  usage  equivalent  to  law.  The 
other  words  are  to  be  taken  in  their  full  and  technical 
meaning.  It  is  believed  that,  while  this  definition  is  short 
and  simple,  it  just  covers  the  whole  ground  and  no  more. 
It  is  not  enough  that  a  certain  valuable  be  "  legal "  as 
Money  ;  it  must  also  be  "  current "  in  order  to  be  a  true 
money.  In  the  United  States  between  1862  and  1879,  to 
take  an  example,  gold  coins,  though  legal  tender  all  the 
time  for  all  debts  public  and  private,  were  not  "  current " 
in  the  full  sense  of  that  term,  and  hence  were  not  the 
Money  of  the  country.  Till  the  last-mentioned  date,  the 
gold  dollar  of  25|  grains  standard  fine  was  required  by  law 
to  pay  customs-taxes  with  and  the  interest  on  the  public 
debt,  and  was  used  to  a  small  extent  in  a  few  branches  of 


MONEY.  381 

private  business,  and  was  not  otherwise  in  the  hands  of 
the  people.  These  dollars,  accordingly,  were  not  strictly 
money,  but  bore  a  premium  over  the  "  current "  money 
of  the  country.  To  be  Money,  then,  a  Valuable  must  be 
recognized  as  money  by  law  or  custom  as  strong  as  law, 
and  also  circulate  among  all  classes  of  the  people  as  a 
medium  in  their  exchanges. 

But  we  are  bound  to  observe  that  Money  becomes  a 
medium  in  men's  exchanges,  because  it  first  became  a 
measure  in  their  Services.  Some  economists  think  that 
these  two  functions  are  separate,  and  are  of  equal  rank; 
but  it  is  easy  to  see  that  one  only  is  original,  and  that  the 
other  is  derived  from  that.  Even  Aristotle  perceived  that 
Money  is  a  Measure,  inasmuch  as  he  defined  property  "  any- 
thing that  can  be  measured  by  money"  We  may  be  pretty 
sure,  in  opposition  to  Professor  Jevons,  in  his  Money  and 
the  Mechanism  of  Exchange  at  page  13,  who  thinks  there 
are  four  characteristics  of  Money,  that  Money  as  such  has 
but  one  primary  characteristic  difference  from  other  forms 
of  Value,  namely,  this  measure-quality,  this  standard-quality, 
this  publicly  recognized  function  as  a  common  measure  to 
which  all  other  valuables  are  constantly  referred.  This 
additional  attribute  put  upon  a  money-valuable  by  law  or 
custom  is  not  what_  makes  it  valuable,  since  an  ounce  of 
uncoined  gold  standard  fine  is  worth  within  a  very  small 
fraction  as  much  as  an  ounce  of  gold  coins,  but  it  makes  the 
money  a  far  more  convenient  instrument  to  purchase  with, 
inasmuch  as  money,  having  now  the  attribute  of  making  all 
other  valuables  easily  commensurable  with  itself,  becomes 
at  once  something  which  everybody  is  ready  to  receive, 
because  everybody  knows  in  general  what  its  power  will 
be  to  purchase  all  other  things.  In  other  words,  Money 
becomes  a  medium  in  exchanges  just  because  it  has  already 
become  a  measure  of  Services  in  general ;  and  there  are 


382  PRINCIPLES   OF   POLITICAL   ECONOMY. 

not  consequently  two  prime  functions  of  Money,  still  less 
four,  but  only  one.  This  view  seems  to  simplify  the  whole 
subject  of  Money  very  much ;  and  we  may  be  sure  that  it 
will  be  found  to  be  scientifically  correct,  and  that  we  shall 
find  many  means  of  testing  its  accuracy  as  we  go  on. 

To  maintain,  as  we  do,  that  "  Money  is  a  measure  of 
Services,"  is  much  better  than  to  say,  in  connection  with 
many  economists,  that  "  Money  is  a  Measure  of  Value." 
That  phrase  is  objectionable  because  Value  is  always  rela- 
tive to  two  Services  exchanged  for  each  other ;  and  to  say 
that  money  is  a  measure  of  that  relation  is  neither  so  simple 
nor  so  ultimate  as  to  say  that  it  is  a  measure  of  each  of  the 
Services  entering  into  that  relation.  The  Services  may  be 
conceived  of  and  spoken  of  separate  from  the  Value  into 
which  they  merge,  although  they  come  into  existence 
solely  for  the  sake  of  that  resultant  Value,  and  it  is  more 
exact  and  final  to  propound  that  Money,  itself  a  Service,  is 
a  measure  of  all  other  Services  considered  as  constituent 
elements  of  the  Values  into  which  they  fall.  We  are  not 
without  strong  hopes,  accordingly,  that  competent  econo- 
mists will  concede,  that  here  is  a  radical  improvement  in 
the  nomenclature  of  our  Science. 

In  the  place  of  our  expression  and  definition,  and  the 
foregoing  explanation  consequent  upon  its  use,  President 
Walker  in  his  Money,  pages  280  et  seq.,  prefers  the 
mathematical  and  excellent  phrase,  "  the  common  denomi- 
nator in  exchange  "  ;  Professor  Bonamy  Price,  in  his 
Practical  Political  Economy,  page  363,  shows  his  fond- 
ness for  the  formula  (and  it  is  a  good  one),  "  the  tool  of 
exchange " ;  and  Henry  Dunning  Macleod,  in  his  Ele- 
ments of  Banking,  page  17,  insists  with  much  less  reason, 
that  "  Money  is  the  representative  of  Debt"  He  says : 
"  The  quantity  of  money  in  any  country  represents  the 
amount  of  Debt  which  there  would  be  if  there  was  no 


MONEY.  383 

money ;  and  consequently  when  there  is  no  debt  there 
can  be  no  money."  The  unfortunate  use  by  some  coun- 
tries of  a  paper  money,  which  is  indeed  a  form  of  debt, 
gives  some  plausibility  to  the  notion  that  Money  is  a 
representative  of  Debt ;  and  perhaps  the  fact  that  Money 
is  often  used  to  pay  debts  previously  contracted,  and  that 
debts  are  almost  always  contracted  in  the  terms  of  Money, 
may  give  some  additional  plausibility  to  this  view ;  but 
as  Macleod  himself  goes  on  to  say  that  "  no  substance 
possesses  so  many  advantages  as  a  metal  for  money,"  and 
that  "  all  civilized  nations  therefore  have  agreed  to  adopt 
a  metal  as  money,  and  of  metals,  gold,  silver,  and  copper 
have  been  chiefly  used,"  we  do  not  see  how  he  can  logically 
hold  that  a  gold  dollar,  or  a  gold  sovereign,  whose  value  is 
as  substantive  and  independent  as  that  of  any  Valuable  in 
the  world  can  be,  becomes  through  coinage  and  circulation 
"  a  representative  of  Debt."  Instead  of  saying  as  he  does, 
"  where  there  is  no  debt  there  can  be  no  money,"  it  may  be 
confidently  asserted  on  the  other  hand,  where  all  transac- 
tions are  settled  at  once  in  solid  money  there  can  be  no  debt. 

7.  Having  thus  looked  into  the  nature  of  Money,  and 
seen  what  is  its  one  essential  characteristic,  and  its  one 
obvious  and  universal  function  as  the  result  of  that,  it 
will  help  us  now  in  our  further  discussion,  to  examine 
some  of  the  material  commodities  that  have  served  as 
Money  at  different  times  and  places. 

Cattle  appear  to  have  been  the  earliest  money  of  which 
there  remains  any  record.  Homer,  near  the  middle  of  the 
sixth  book  of  the  Iliad,  indicates  in  the  following  lines 
that  oxen  were  an  incipient  money  in  the  Heroic  age :  — 

"  Then  did  the  son  of  Saturn  take  away 
The  judging  mind  of  Glaucus,  when  he  gave 
His  arms  of  gold  away  for  arms  of  brass 
Worn  by  Tydides  Diomed,  —  the  worth 
Of  fivescore  oxen  for  the  worth  of  nine." 


384  PRINCIPLES   OF  POLITICAL   ECONOMY. 

We  cannot  certainly  infer,  when  it  is  said  in  Genesis  that 
"  Abraham  departed  out  of  Egypt  very  rich  in  cattle  and 
silver  and  gold,"  that  any  of  these  were  anything  more 
than  articles  of  valuable  merchandise  ;  but  on  the  other 
hand  it  is  certain  from  the  Latin  name  of  Money,  Pecunia, 
which  is  derived  from  the  root  pecus,  which  means  "  cattle" 
that  Cattle  were  the  Money  of  the  early  Romans ;  and 
Pliny  writes  expressly  that  King  Servius  Tullius  stamped 
the  first  bronze  money  of  Rome  with  the  image  of  cattle, 
undoubtedly  indicating  by  that  some  equivalence  in  cur- 
rent value  between  the  two.  At  any  rate  cattle  have 
been  used  as  Money  among  pastoral  peoples  very  widely 
in  place  and  in  time,  and  are  still  so  used  in  various  parts 
of  Africa. 

In  the  region  of  the  Euphrates  and  Tigris  the  precious 
metals  became  money  in  very  remote  antiquity ;  for  the 
art  of  coining,  and  all  other  arts,  came  thence  westward 
to  the  Greek  cities  of  Asia  Minor,  and  to  Greece  itself, 
and  we  learn  that  Pheidon,  King  of  Argos,  coined  silver 
money  on  a  scale  derived  from  the  East  in  869  B.C.  ;  and 
a  better  proof  still  is  the  fact  that  burnt  clay  tablets  are 
found  in  the  Royal  Library  at  Nineveh,  discovered  by 
Layard,  which  are  really  credit-money,  notes  issued  by  the 
Government,  and  made  redeemable  in  gold  and  silver 
money  on  presentation  at  the  king's  treasury.  Tablets  of 
this  character  are  extant  bearing  date  as  early  as  625  B.C. 
But  the  gold  and  silver  money  must  have  been  circulating 
a  long  time  in  their  own  right  as  valuables,  before  such 
a  credit-money,  such  a  promise-money,  as  those  tablets  are, 
could  have  originated  in  connection  with  them.  Abra- 
ham, who  himself  migrated  from  "  Ur  of  the  Chaldees  " 
about  2000  years  B.C.,  not  long  after  reaching  the  Medi- 
terranean, "  weighed  unto  Ephron  the  silver  which  he  had 
named  in  the  audience  of  the  sons  of  Heth,  four  hundred 


MONEY.  385 

shekels  of  silver,  current  money  with  the  merchant." 
This  is  expressly  said  to  be  "  money "  and  "  current 
money."  Perhaps  it  was  coined  money.  At  any  rate,  it 
was  cut  and  piece  money.  It  was  indeed  weighed  out, 
and  not  counted  out.  This  is  still  the  more  accurate  and 
speedy  manner,  when  the  facilities  for  the  weighing  are 
present.  The  Bank  of  England  at  this  day  weighs,  and 
not  counts,  the  coins  received  and  paid  out.  The  Romans 
first  coined  silver  money  in  269  B.C.,  and  gold  money  in 
207  B.C.,  and  gold  coins  were  stamped  in  Greece  about 
the  time  of  Alexander  the  Great,  say  333  B.C. 

Other  metals  than  those  called  precious  were  also  early 
used  as  money.  Long  before  Pheidon's  silver  coinage  in 
Greece,  copper  skewers  were  used  as  money  in  that  coun- 
try, of  which  six  made  up  a  drachm,  which  was  afterwards 
both  a  coin  and  a  unit  of  weight,  the  coin  being  worth 
about  17  cents  of  our  money,  and  the  weight  being  about 
66  grains  avoirdupois.  The  word  drachm  is  derived  from 
Spdy pa,  a  handful;  and  the  sixth  part  of  it,  called  an  obol, 
from  the  Greek  word  meaning  a  spit,  became  also  both  a 
coin  and  a  weight,  all  which  makes  it  evident  that  these 
were  used  in  connection  with  roasting  meat,  and  that  one 
skewer  or  obol  was  originally  a  unit  both  of  value  and  of 
weight.  In  Adam  Smith's  day,  in  certain  districts  in  Scot- 
land, nails  were  still  used  as  small  money,  which  is  a  forci- 
ble reminder  of  these  old  Greek  skewers.  Iron  became 
money  in  Sparta;  money  of  lead  was  known  to  the  an- 
cients, and  is  still  current  in  the  Burman  empire  ;  the 
earliest  Roman  coins  were  of  copper,  which  were  cast 
rather  than  stamped,  for  no  die  would  have  sufficed  for 
pieces  so  large  and  heavy,  and  the  denarius  was  the  unit 
divided  into  ten  asses,  the  denarius  being  nearly  the  equiv- 
alent of  the  Greek  drachma  whether  of  copper  or  silver, 
because  the  Romans  reckoned  from  the  first  the  ratio  of 


386  PRINCIPLES   OF   POLITICAL   ECONOMY. 

copper  to  silver  as  250  : 1 ;  bronze  is  a  mixture  of  copper 
and  tin,  and  brass  of  copper  and  zinc,  and  copper  coins 
with  both  these  admixtures  —  used  for  the  purpose  of  hard- 
ening the  copper,  it  being  a  general  law  of  metals  that  a 
mixture  of  two  is  harder  than  either  —  have  been  very  com- 
mon in  ancient  and  modern  times ;  Sicilian,  Roman,  and 
old  British  coins  of  tin  alone  are  known  to  have  been 
struck;  and  Herodotus  makes  the  statement  that  the 
Lydians  of  Asia  Minor  were  the  first  to  make  a  coinage  of 
electrum,  which,  as  some  claim,  was  a  mixture  of  gold  and 
silver,  and  of  which  ancient  specimens  are  still  existing. 

Cowry  shells  are  still  used  in  the  East  Indies,  and  also 
in  Africa  in  the  place  of  small  coins,  and  have  sometimes 
been  imported  into  England  from  India  to  be  exported  in 
trade  to  the  coast  of  Africa,  being  reckoned  in  Bengal  at 
about  3200  to  a  silver  rupee,  which  is  about  46  of  our 
cents.  The  New  England  Indians  also  used  beads  or 
shells  of  periwinkles  (white)  and  of  clams  (black),  of 
which  360  made  up  a  belt  of  wampum,  as  they  called  it, 
the  black  being  counted  worth  twice  as  much  as  the  white ; 
and  the  English  colonists  accepted  the  wampum  in  their 
exchanges  with  the  Indians,  regarding  a  string  of  white  as 
equal  to  five  shillings,  and  a  string  of  black  to  ten  shil- 
lings, and  afterwards  made  it  legal  tender  among  them- 
selves for  small  sums,  and  even  counterfeited  it.  Cakes  of 
tea  have  passed  as  money  in  India,  and  elsewhere ;  and  it 
is  said,  that  at  the  great  annual  fair  at  Novgorod,  in 
Russia,  the  price  of  tea  has  first  to  be  determined  before 
the  prices  of  other  things  can  be  settled  upon,  since  that  is 
a  kind  of  standard  of  Values  in  that  great  mart.  Salt  has 
been  current  money  in  Abyssinia ;  cod-fish  in  Ireland  and 
Newfoundland ;  and  beaver-skins  in  New  Netherlands,  New 
England,  and  the  western  parts  of  America. 

We  do  not  here  try  at  all  to  give  a  full  list  of  the  things 


MONEY.  387 

that  are  known  to  have  been  used  in  the  early  states  of 
society  as  money ;  and  there  would  be  no  ground  for  sur- 
prise in  any  list,  however  large  and  varied,  when  we  re- 
member how  great  is  the  need  of  some  such  form  of  value 
generalized  in  order  that  exchanges  may  grow  to  any  con- 
siderable size  and  vigor.  Two  points  only  need  now  to  be 
noted,  (1)  that  the  tendency  everywhere  has  been  sooner 
or  later  to  come  to  the  metals  as  the  best  form  of  money, 
and  among  the  metals  to  reach  gold  and  silver  as  the  only 
ultimately  satisfactory  materials  for  Money ;  and  (2)  that 
no  instance  has  ever  been  found  in  the  whole  stretch  of 
inquiry  over  all  the  earth,  of  anything  becoming  a  Money 
that  had  not  been  previously  a  Valuable.  We  might  be 
perfectly  sure  of  this  beforehand,  without  any  search  at  all 
among  the  moneys  of  primitive  times  and  states  of  civili- 
zation, because,  from  the  very  nature  of  the  case  nothing 
could  ever  serve  the  purpose  of  Money  except  what  was 
already  a  valuable  to  make  the  comparison  with, — nothing 
could  ever  possibly  serve  as  a  measure  of  services  except 
a  service.  It  has  several  times  been  claimed,  that  actual 
exceptions  to  this  law  have  been  historically  discovered, 
but  when  the  alleged  exceptions  have  been  closely  scruti- 
nized they  have  been  found  to  be  apparent  only.  To  take 
two  or  three  of  the  most  plausible  examples :  the  Cartha- 
ginians had  a  kind  of  leather  money,  which  originally  en- 
closed bits  of  the  precious  metals,  and  circulated  in  virtue 
of  them,  though  they  afterwards  came  to  circulate  as  bits  of 
leather  only,  as  counters  and  pledges,  in  a  way  that  will  be 
explained  later.  According  to  the  Venetian  traveller,  Polo, 
China  had  in  the  thirteenth  century  a  money  made  of  the 
bark  of  the  mulberry  tree,  cut  into  round  pieces  and  stamped 
with  the  name  of  the  sovereign,  which  money  it  was  death 
to  counterfeit  or  to  refuse  to  take  in  any  part  of  the  em- 
pire. If  we  had  the  whole  history  of  this  money,  it  would 


388  PRINCIPLES   OF   POLITICAL  ECONOMY. 

surely  ally  itself  either  with  the  other  commodity-moneys 
now  being  treated,  or  with  the  modern  credit-moneys  made 
legal  tender  to  be  treated  hereafter.  It  is  just  as  certain 
as  anything  can  be,  that  these  circles  of  stamped  bark  did 
not  start  out  as  money  in  their  own  right.  The  French 
writer,  Montesquieu,  asserted  that  there  was  in  use  in  the 
last  century  among  the  people  of  the  coast  of  Africa,  what 
he  called  "an  ideal  money,"  "a  sign  of  value  without 
money,"  the  unit  of  which  was  called  a  macoute,  which 
was  subdivided  in  ideal  tenths,  called  pieces.  This  state- 
ment was  startling,  as  implying  a  denomination  without 
the  thing  denominated,  as  implying  a  standard  of  value 
which  had  no  basis  in  a  valuable  thing.  It  was  afterwards 
discovered,  however,  that  this  money  of  account  had  its 
origin,  just  as  we  should  suppose  it  must  have  had,  in  an 
actual  macoute,  a  piece  of  stuff,  a  fabric,  which  they  had 
used  first  as  a  commodity-money,  and  afterwards  its  name 
as  a  money  of  account.  A  valuable  thing  may  become 
money,  and  then  its  name  may  become  a  denomination  of 
value,  and  still  later  a  bit  of  leather  or  a  bit  of  paper  may 
be  called  by  the  same  name,  and  in  a  certain  sense  take  the 
place  of  the  same  thing.  All  this  will  be  as  clear  as  day 
pretty  soon. 

8.  Contrary  to  what  has  often  been  affirmed  by  Econo- 
mists, the  real  measure  of  Services  is  the  service  itself,  the 
thing-doll&T  and  not  the  denomination-dollar.  The  denom- 
inations are  used  in  bargainings  and  calculations  as  repre- 
sentatives of  the  money  itself,  and  thus  indeed  in  a  second- 
ary sense  serve  as  meamt,res ;  but  the  subtle  connection 
between  the  thing  and  its  name,  between  money  and  its 
denominations,  and  the  differences  between  the  two,  need 
to  be  clearly  unfolded,  because  most  of  the  current  falla- 
cies about  money  take  their  rise  just  at  this  point.  An 
illustration  will  best  serve  us  here.  The  original  measure 


MONEY.  389 

of  Services  in  France  and  England  and  Scotland  was  the 
pound  weight  of  silver.  No  coin  of  that  weight  was  ever 
struck ;  but  the  pound  of  silver  was  cut  into  240  coins 
called  pence.  Twelve  of  these  pence  were  called  a  solidus 
or  shilling.  Thus,  as  applied  to  silver,  the  symbols  Ib.  and 
£  denoted  equivalent  weights,  the  former  of  uncoined 
metal,  the  latter  of  metal  coined.  But  in  course  of  time, 
more  u  pence  "  than  240,  and  at  last  in  Elizabeth's  reign 
744  "  pence  were  coined  out  of  a  Ib.  of  silver."  Yet  all  the 
while  240  of  these  pence  were  called  a  X.  <£  and  Ib.,  both 
a  contraction  of  the  Latin  libra,  were  no  longer  equivalent. 
The  Ib.  of  weight  continued  stable ;  the  <£  of  money  had 
dwindled  to  less  than  one-third.  Yet  the  name  pound 
continued  to  attach  to  240  pence,  although  the  pence 
embodied  a  less  and  less  quantity  of  silver.  Each  actual 
penny  had  less  silver  in  it,  and  though  it  was  still  called  a 
penny  as  before,  the  denomination,  though  spelled  and 
sounded  as  before,  represented  less  silver,  and  therefore 
less  value,  than  before.  The  denominations,  then,  always 
follow  the  fortunes  of  the  coins,  whose  names  they  are,  to 
the  frequent  loss  and  shame  of  the  unthinking,  who  sup- 
pose the  same  name  must  represent  the  same  thing.  Un- 
fortunately it  does  not. 

Take  another  illustration.  In  1834  the  gold  eagle  of 
the  United  States  was  reduced  in  weight  from  270  to  258 
grains  troy,  and  the  alloy  increased  from  one  part  in  12  to 
one  part  in  10.  These  changes  took  out  more  than  6  parts 
of  gold  from  every  100  parts  in  all  the  gold  coins  of  the 
country.  Yet  all  these  coins  bore  the  same  names  as 
before.  The  things  denominated  changed,  but  the  denom- 
inations changed  not.  Other  things  remaining  equal,  the 
coins  lost  six  per  centum  of  their  purchasing-power,  or  in 
other  words,  general  prices  rose  in  that  proportion ;  the 
measure  became  so  much  smaller;  and  the  names,  eagle, 


390  PRINCIPLES    OF    POLITICAL   ECONOMY. 

dollar,  outwardly  unchanged,  varied  simultaneously  and 
equally  with  the  change  in  the  coins. 

Also,  coins  are  liable  to  change  in  their  function  as  a 
measure  of  general  Services  from  unavoidable  changes  in 
the  general  purchasing-power  of  the  precious  metals  them- 
selves. If  for  any  reason  an  ounce  of  gold  will  buy  less 
of  general  Services  than  formerly,  of  course  the  coins  cut 
from  that  gold  will  buy  less  than  formerly ;  and  this 
change  in  the  measure  is  followed  instantly  and  inevitably 
by  a  corresponding  change  in  the  meaning,  though  not  in 
the  spelling,  of  the  denomination.  Not  so  with  all  other 
tables  of  denominations.  These  have  a  basis  independent 
of  the  things  which  they  help  to  measure.  The  French 
metre,  for  example,  is  not  variable  by  the  lengths  or 
breadths  or  heights  of  the  things  it  measures,  but  is  an 
invariable  unit  of  length  the  world  over;  so  is  one  of 
Troughton's  inches ;  but  this  feature  does  not  hold  at  all 
of  the  denominations  of  Money ;  because  sovereigns,  dollars, 
marks,  francs,  are  denominations  of  Value,  which  is  itself 
a  variable  relation.  Such  denominations,  consequently, 
are  not  an  independent  standard  to  which  values  them- 
selves can  be  referred,  as  lengths  are  referred  to  metres 
and  inches,  but  vary  with  the  varying  purchasing-power 
of  the  coins  themselves.  The  "dollar,"  as  a  denomination, 
means  more  or  less,  just  according  as  the  "  DOLLAR,"  as  a 
coin,  buys,  that  is,  measures,  more  or  less. 

Still,  essential  as  is  the  point  now  made  to  any  just 
understanding  of  the  subject  of  Money,  it  is  vastly  impor- 
tant for  all  the  interests  of  Exchange  that  the  accepted 
measure  of  Services  be  as  little  liable  to  fluctuations  as 
possible,  especially  in  all  cases  in  which  lapse  of  time  is 
involved  before  the  exchange  is  fully  consummated.  An 
inflexible  standard  there  cannot  be  from  the  very  nature 
of  the  measuring,  but  also  from  the  very  nature  of  all 


MONEY.  391 

measuring,  the  money-standard  should  be  and  should  be 
kept  as  nearly  inflexible  as  it  possibly  can  be.  For  the 
same  reason  in  kind,  only  multiplied  a  thousand-fold  in 
force,  that  the  bushel-measure  should  be  of  the  same 
capacity  in  sowing-time  and  in  harvest-time,  to  sell  and 
buy  by,  always  a  bushel,  no  more  and  no  less ;  and  the 
yard-stick  an  inflexible  measure  of  length,  always  36  of 
Troughton's  inches,  no  more  and  no  less ;  so,  as  far  as  it  is 
possible  in  the  nature  of  Values,  ought  the  current  meas- 
ure of  Services,  and  hence  its  denominations,  to  represent, 
year  in  and  year  out,  a  uniform  degree  of  purchasing- 
power. 

9.  This  brings  us  logically  to  the  historical  fact,  that, 
no  matter  what  measure  of  services  any  people  may  have 
adopted  in  their  primitive  times,  there  has  always  been  a 
steady  force  at  work  tending  to  displace  these  in  favor  of 
gold  and  silver.  This  has  become  the  universal  result  the 
world  over  among  all  advanced  peoples.  Governor  Bradford 
in  his  History  of  Plymouth  Colony  gives  a  quaint  account 
of  the  origin  of  money  among  the  Pilgrims,  and  in  connec- 
tion with  that  of  the  fee-simple  in  lands :  "  The  Pilgrims 
began  now  highly  to  prize  corn  as  more  precious  than  silver, 
and  those  that  had  some  to  spare  began  to  trade  one  with  an- 
other for  small  things,  by  the  quart  bottle  and  peck ;  for 
money  they  had  none,  and  if  any  had,  corn  was  preferred 
before  it.  That  they  might,  therefore,  increase  their  tillage 
to  better  advantage,  they  made  suit  to  the  governor  to  have 
some  portion  of  land  given  them  for  continuance  and  not  by 
yearly  lot,  for  by  that  means  that  ivhich  the  more  industrious 
had  brought  into  good  culture  (by  such  pains)  one  year  came 
to  leave  it  the  next  and  often  another  might  enjoy  it ;  so  as 
the  dressing  of  their  lands  were  the  more  sleighted  over  and 
to  less  profit;  which,  being  ivell  considered,  their  request 
was  granted''1 


392  PRINCIPLES   OF  POLITICAL  ECONOMY. 

The  neighboring  Colony  of  Massachusetts,  settled  about 
ten  years  later,  used  Bullets  for  small  change,  reckoning 
them  at  a  farthing  apiece,  and  made  them  legal  tender  for 
debts  of  less  than  one  shilling ;  for  larger  exchanges  Wam- 
pum and  Beaver-skins  were  long  used;  but  the  steady 
force  just  spoken  of  induced  Massachusetts  in  1652  to 
supplant  these  with  a  silver  coinage  of  her  own,  called  the 
Pine-tree  shillings  and  sixpences  and  threepences  and  two- 
pences.  This  mint  existed  (sometimes  idle)  for  over  30 
years,  but  all  the  pieces  coined  bore  the  dates  of  1652  or 
1662.  In  1691,  the  two  Colonies  were  forced  into  one 
government  through  a  new  charter  granted  by  William 
and  Mary ;  and  after  lengthened  trials  of  inferior  moneys, 
not  needful  to  be  described  now,  Massachusetts  deter- 
mined in  1749  to  have  no  other  than  silver  money  circulate 
in  the  Colony,  and  became  thereafter  till  the  Revolution 
the  so-called  "  Silver  Colony,"  and  business  rapidly  and 
steadily  revived  and  enlarged  in  consequence  of  the 
change,  and  in  contrast  with  the  rest  of  New  England. 

Gold  and  silver,  thus  ever  urging  their  way  in  to  take 
the  place  of  tentative  and  transient  standards,  and  ever 
coming  back  again  to  stay  if  displaced  for  a  time  by 
cheaper  and  changeable  moneys,  have  never  been  any- 
where of  equal  value,  weight  for  weight.  An  ounce  of 
gold  has  always  been  more  valuable  than  an  ounce  of  sil- 
ver. Probably  in  the  Euphrates  country  where  coinage 
began,  and  certainly  in  Asia  Minor  deriving  thence  its 
weights  and  measures,  gold  was  strictly  the  standard  with 
silver  as  subsidiary  to  that ;  in  Greece,  when  Philip's  vic- 
tories established  a  double  standard  there,  gold  was  reck- 
oned relatively  to  silver  as  l:12-j-;  in  the  Roman  world, 
where  silver  had  been  the  standard  after  217  B.C.,  Augustus 
Csesar  legalized  gold  as  a  co-standard  in  the  ratio  of  1 : 12 ; 
in  1717  a  double  standard  was  established  in  Great  Britain, 


MOHEY..  393 

gold  being  rated  in  the  coinage  as  1 : 15^  of  silver,  but  in 
1816  by  a  law  still  in  force,  gold  was  made  the  sole  stand- 
ard for  the  United  "Kingdom,  the  legal  use  of  silver  being 
limited  to  40s.  in  any  one  payment ;  in  France  the  legal 
relation  of  gold  to  silver  was  fixed  in  1803  as  1 : 15|,  and  so 
continued  till  1876 ;  in  the  United  States  the  ratio  first 
established,  in  accordance  with  the  recommendation  of 
Alexander  Hamilton  as  Secretary  of  the  Treasury,  was 
1 : 15,  but  in  1834  this  was  changed  to  the  relation  of 
1 : 15.98,  and  so  it  remains  to  this  day ;  in  1871,  the  new 
German  Empire  adopted  the  sole  gold  standard,  and  lim- 
ited silver  to  the  amount  of  20  marks  in  any  one  forced 
payment,  still  allowing  the  old  silver  thaler  to  circulate  at 
the  rate  of  three  marks  to  a  thaler;  and  since  1875,  the 
Scandinavian  Union  permits  gold  alone  to  be  coined  for 
private  persons,  and  limits  the  debt-paying  power  of  silver 
to  20  croivns.  A  crown  is  26.78,  and  a  mark  23.82,  of 
our  standard  cents. 

Moreover,  the  relative  value  of  gold  in  silver  never  con- 
tinues the  same  for  any  great  length  of  time,  even  after 
the  law  has  sought  to  ascertain  and  fix  it.  Indeed,  any  law 
fixing  the  ratio  between  the  two  has  very  little,  if  any, 
effect  towards  maintaining  the  ratio.  Demand  and  Supply 
determine  the  value  of  the  precious  metals  each  in  each 
at  any  one  time  as  absolutely  as  they  decree  the  value  of 
Hindoo  rice  in  silver.  France  managed  to  maintain  her 
legal  ratio  at  1 : 15j  for  73  years,  because  all  the  conditions 
were  on  the  whole  favorable  ;  but  when  the  Germans  threw 
a  portion  of  their  silver  on  the  world's  market  in  hopes  to 
reach  the  single  gold  standard,  and  the  mines  of  Nevada 
poured  forth  on  the  same  market  their  millions  of  silver, 
the  ratio  could  no  longer  stand,  the  right  of  private  indi- 
viduals to  have  silver  coined  for  them  was  taken  away  in 
behalf  of  the  government,  and  only  the  five-franc  silver 


394  PRINCIPLES   OF   POLITICAL  ECONOMY. 

pieces  continued  to  be  legal-tender  to  all  amounts,  the 
other  silver  coins  becoming  then  (1876)  only  legal  to  pay 
debts  to  the  amount  of  fifty  francs.  A  franc  is  19.29  of 
our  standard  cents. 

And  this  brings  us  to  notice  what  are  called  subsidiary 
coins.  France,  England,  Germany,  and  the  United  States 
have  debased  their  smaller  silver  coins  in  weight,  so  that 
the  nominal  value  of  these  coins  is  from  7  to  15  %  above 
their  bullion  value.  For  example,  two  halves,  four  quarters, 
ten  dimes,  of  our  silver  since  1875  weigh  385.8  grains, 
which  is  also  the  exact  weight  of  the  French  five-franc  piece, 
while  our  standard  silver  dollar  weighs  41 2i  grains,  both 
y9^  fine,  so  that  our  "  subsidiary  "  silver  is  debased  in  weight 
6.48%.  There  are  three  advantages  in  thus  treating  the 
smaller  silver :  (1)  there  is  so  much  clear  profit  to  the 
Government  minting  them,  thus  lessening  taxation ;  (2)  a 
security  to  the  peoples  that  they  shall  not  lose  their  con- 
venient small  change  by  export  to  neighboring  countries ; 
and  (3)  this  scheme  allows  a  very  considerable  rise  in  the 
market  value  of  silver  without  tending  to  throw  the  sub- 
sidiaries out  of  circulation.  As  these  are  never  legal-tender 
except  to  very  small  amounts  in  domestic  trade,  there  are 
no  serious  objections  to  their  use  in  limited  quantities. 
The  English  can  pay  debts  in  their  silver  to  the  amount  of 
<£2,  and  we  in  ours  to  the  extent  of  $5.  Coins  of  copper 
and  of  other  inferior  metals  *  are  also  subsidiary  in  princi- 
ple and  motive.  Our  5-cent  and  3-cent  nickel  pieces  are 
75  parts  copper  and  25  parts  nickel,  and  the  1-cent  piece  is 
95  parts  copper  and  5  parts  tin-zinc  ;  and  debts  of  4  cents 
can  be  paid  in  1-cent  pieces,  of  60  cents  in  3-cent  pieces, 
and  of  100  cents  in  5-cent  pieces. 

10.  The  steady  experience  of  civilized  men  for  two  mil- 
leniums  and  a  half  seems  to  demonstrate,  that  gold  and 
silver  constitute  the  best  Monev  ;  and  we  must  now  inves- 


MONEY.  395 

tigate  the  reasons,  one  by  one,  why  they  are  the  best  money. 
The  reasons  appear  to  be  three.  Of  these  the  first  is  by 
much  the  most  important. 

(1)  The  first  and  main  reason  why  gold  and  silver 
make  the  best  money  is  to  be  found  in  their  comparatively 
steady  general^  Value.  Since  Money  is  a  Measure  of  all 
other  valuables,  its  success  as  a  measure  must  depend  on 
its  own  steadiness  of  value,  and  gold  and  silver  meet  this 
test  better  than  anything  else.  Money  is  a  valuable,  and 
not  in  any  sense  a  representative  of  value;  except  as  to 
the  subsidiaries,  a  coin  does  not  owe  its  value  at  all  to  the 
stamp  impressed  upon  it  or  to  the  law  authorizing  it,  since 
the  metal  in  it  is  worth  as  much  out  of  the  coinage  as  in 
it ;  coin-values  arise  under  the  same  conditions  as  all  other 
values,  and  are  variable  by  any  change  in  any  one  of  the 
four  elements  which  alone  can  vary  the  value  of  anything ; 
and  it  would  seem  that  nothing  more  is  needed  in  order 
to  remove  the  last  vestiges  of  the  dark  cloud  which  has  so 
long  overhung  this  subject  of  Money,  than  to  familiarize 
ourselves  first  of  all,  as  we  have  already  done,  with  the 
true  doctrine  of  Value  in  general,  and  then  to  hold  fast 
the  truth  exemplified  on  every  hand,  that  the  value  of 
Money  is  just  like  every  other  value.  Let  us  examine 
then,  first,  why  the  value  of  gold  and  silver  is  so  steady. 

(a)  On  account  of  the  comparatively  steady  Demand  for 
these  metals.  Gold  and  silver  are  wanted  for  two  general 
purposes  :  first,  to  be  used  as  money,  and  second,  to  be  used 
in  the  arts ;  and  the  usual  estimate  is,  that  about  f  of  the 
aggregate  quantity  in  the  world  is  in  the  form  of  money, 
and  the  other  f  in  the  form  of  plate  and  utensils  and  orna- 
ments. Now,  so  far  as  the  element  of  Desire  controls 
Value,  the  purpose  for  which  any  article  is  desired  is  a 
matter  of  indifference.  The  aggregate  desire  for  it  for  all 
purposes,  accompanied  with  the  offer  of  something  with 


396  PBIHCIPLES   OF   POLITICAL   ECONOMY. 

which  to  buy  it,  constitutes  the  Demand ;  and  the  more 
universal  the  desire,  no  matter  for  what  use,  the  steadier 
the  Demand  and  so  far  forth  the  steadier  the  Value.  It  is 
a  point  still  too  little  noticed,  that  the  combined  demand  for 
the  precious  metals  for  all  uses  is  what  helps  determine 
their  general  value,  and  not  the  demand  for  them  as  coin 
alone ;  just  as  the  value  of  barley  is  regulated  partly  by 
the  demand  for  it  for  food,  and  partly  by  the  demand  for  it 
for  malting  purposes.  Hence  an  ounce  of  bullion  of  the 
standard  fineness  destined  for  the  smelting-pot  of  the  artisan 
is  worth  within  a  very  trifle  as  much  as  an  ounce  of  coined 
money. 

For  example,  by  the  law  of  the  Bank  of  England  an 
ounce  of  standard  gold  (f|  fine)  is  coined  into  .£3  17s. 
lO^d.,  and  the  Bank  is  obliged  to  buy  all  bullion  and  foreign 
coins  of  the  standard  fineness  offered  to  it  at  X 3  17s.  9d. 
per  ounce,  —  a  difference  of  only  three  half-pennies.  Now, 
gold  and  silver  are  so  indispensable  in  the  form  of  money, 
so  beautiful  in  the  form  of  ornaments,  so  well  adapted  to 
serve  the  purposes  of  luxury  and  love  of  distinction,  and 
so  really  useful  in  the  arts,  that  the  Demand  for  them  is 
constant  and  well-nigh  universal ;  and  should  there  be  in 
the  progress  of  civilization  a  lessened  demand  for  them  for 
purposes  of  personal  ornamentation  and  luxury,  and  a  less 
quantity  be  required  for  coins  on  account  of  the  multiplied 
use  of  cheques  and  other  credit-forms,  as  seems  likely  in 
both  cases,  a  greater  quantity  will  doubtless  be  required 
for  all  the  other  uses  old  and  new,  and  so,  as  the  Demand 
in  the  past  has  been  steady,  and  probably  steadily  increas- 
ing, there  is  every  reason  to  expect  the  same  course  of 
things  for  the  time  to  come.  Moreover,  it  contributes  to 
the  steadiness  in  value  of  the  gold  and  silver  coin,  that 
there  is  at  hand  at  all  times,  in  the  form  of  plate,  a  reservoir 
from  which  a  chance  chasm  in  the  coin  may  be  replenished, 
or  an  extra  demand  for  it  answered. 


MONEY.  397 

(b)  On  account  of  their  tolerably  uniform  Cost  of  Pro- 
duction. Not  Desires  only  but  Efforts  as  well  determine 
Value.  Supply  is  the  correlative  of  Demand ;  and  when 
to  a  steady  demand  there  answers  a  steady  supply  realized 
under  conditions  of  pretty  uniform  difficulty,  there  will  be 
•  as  a  matter  of  course  a  pretty  steady  Value.  Nature  herself, 
that  is  to  say,  God  himself,  has  indicated  in  a  manner  not 
to  be  mistaken  the  intention,  that  these  precious  metals 
should  be  the  Money  of  the  nations.  They  are  scattered 
all  over  the  earth,  and  so  scattered  that  the  cost  of  their 
production  has  been  on  the  whole  pretty  steady  ever  since 
civilization  and  commerce  began  in  earnest.  God  is  a  God 
of  order  throughout  all  His  works.  Corresponding  to  the 
nature  and  necessities  of  men  is  the  whole  structure  of  the 
outward  world.  Science  builds  only  on  these  predetermined 
lines  of  Order.  Induction  is  only  possible  where  original 
Resemblances  run  through  great  departments  of  phenom- 
ena. To  be  enabled  to  buy  and  sell  to  any  considerable 
extent  in  order  to  meet  their  subjective  wants,  men  must 
have  an  objective  measure  of  mutual  Services,  and  this 
measure  must  be  a  valuable  steady  in  its  purchasing-power : 
very  well ;  such  a  possible  measure  was  all  provided  for 
beforehand,  when  the  foundations  of  the  earth  were  laid. 

The  precious  metals  have  always  been  obtained  in  one 
or  other  of  two  ways :  by  surface  diggings  and  washings, 
and  by  rock-mining.  Both  were  employed  in  the  very 
beginnings  of  Civilization.  There  is  a  description  in  the 
book  of  Job  (chapter  xxviii)  of  the  way  in  which  the 
ancient  mines  were  wrought,  and  of  the  worth  of  the  ores : 

"  Truly  there  is  a  vein  for  silver, 
And  a  place  for  gold,  which  men  refine. 
Iron  is  obtained  from  earth, 
And  stone  is  melted  into  copper. 
Man  putteth  an  end  to  darkness ; 


398  PRINCIPLES    OF   POLITICAL   ECONOMY. 

He  searcheth  to  the  lowest  depths 

For  the  stone  of  darkness  and  the  shadow  of  death, 

From  the  place  where  they  dwell  they  open  a  shaft. 

Forgotten  by  the  feet 

They  hang  down,  they  swing  away  from  man. 

The  earth,  out  of  which  cometh  bread, 

Is  torn  up  underneath,  as  it  were  by  fire. 

Her  stones  are  the  place  of  sapphires, 

And  she  hath  clods  of  gold  for  man. 

The  path  thereto  no  bird  knoweth, 

And  the  vulture's  eye  hath  not  seen  it ; 

The  fierce  wild  beast  hath  not  trodden  it ; 

The  lion  hath  not  passed  over  it. 

Man  layeth  his  hand  upon  the  rock; 

He  upturneth  mountains  from  their  roots ; 

He  cleaveth  out  streams  in  the  rocks, 

And  his  eye  seeth  every  precious  thing ; 

He  bindeth  up  the  streams,  that  they  trickle  not, 

And  bringeth  hidden  things  to  light." 

These  methods  and  difficulties  in  rock-mining,  thus 
poetically  and  beautifully  delineated,  have  been  substan- 
tially the  same  from  that  early  day  to  the  present  time  ; 
and,  consequently,  there  have  been  but  two  or  three 
striking  changes  in  the  general  value  of  gold  and  silver 
in  the  commercial  world  during  the  last  500  years,  at  least 
changes  owing  to  easier  and  larger  Supply.  The  discovery 
of  the  mines  of  Potosi  in  1545,  and  the  large  influx  of 
silver  into  Europe  from  those  and  other  American  sources, 
together  with  the  irrational  stimulus  thereby  given  to  the 
working  of  European  mines  under  the  false  impression 
not  even  yet  wholly  dissipated  that  Value  can  be  clutched 
bodily  in  mining,  so  increased  the  stock  of  silver,  that  its 
value  as  measured  in  grain  or  other  commodities  declined 
in  Europe  in  70  years  after  1570  to  about  25%  of  its 
previous  purchasing-power.  Adam  Smith  expresses  the 
opinion  in  his  Wealth  of  Nations,  that  silver  did  not 


MONEY.  399 

perceptibly  fall  before  1570,  nor  continue  to  fall  further 
after  1640.  The  discovery  of  gold  deposits  on  the  Pacific 
coast  of  the  United  States  in  1848,  and  a  similar  discovery 
in  Australia  in  1851,  enlarged  the  annual  supply  of  gold 
for  the  world  from  140,000,000  in  1848  (Chevalier),  to  an 
average  of  $136,000,000  for  the  five  years  ending  in  1859 
(Jevons) ;  and  the  latter  writer  estimated  the  fall  of  gold 
in  general  commodities  from  1845  to  1862  at  about  15%. 
But  with  exceptions  like  these,  and  similar  ones  are  per- 
haps not  likely  to  recur,  the  precious  metals  have  always 
maintained  and  seem  likely  to  maintain  in  the  future  a 
considerable  uniformity  of  Value,  as  estimated  by  their 
power  to  purchase  other  valuables,  so  far  forth  as  Cost  of 
Production  goes  to  determine  their  value.  Even  the  great 
changes  just  noted  in  the  cost  of  the  metals  issued  only 
gradually  in  a  rise  of  Prices,  which  many  were  able  to 
f  >resee  and  thus  to  provide  for,  but  by  which  many  more 
were  caught  and  brought  into  distress  and  even  pauperism. 
The  two  classes  that  suffer  the  most  under  a  fall  in  the 
Value  of  Money  are  the  wages-receivers  and  the  holders 
of  long  annuities  and  other  similar  obligations. 

(c)  On  account  of  their  Quantity.  The  amount  of 
gold  and  silver  in  circulation  in  the  commercial  world,  to 
say  nothing  of  the  quantity  so  easily  brought  into  circu- 
lation from  the  reservoir  of  plate,  is  so  vast,  that  it  receives 
the  annual  contributions  from  the  mines  much  as  the  ocean 
receives  the  waters  of  the  rivers,  without  sensible  increase 
of  its  volume,  and  parts  with  the  annual  loss  by  detrition 
and  shipwreck,  as  the  sea  yields  its  waters  to  evapora- 
tion, without  sensible  diminution  of  volume.  The  yearly 
supply  and  the  yearly  waste  are  small  in  comparison  with 
the  accumulations  of  ages ;  and,  therefore,  the  relation  of 
the  whole  mass  to  the  uses  of  the  world,  and  the  pur- 
chasing-power of  any  given  portion,  remain  comparatively 


400  PRINCIPLES    OF   POLITICAL   ECONOMY. 

steady.  It  is  probable,  that  production  at  the  mines  might 
cease  altogether  for  a  considerable  interval  without  very 
sensibly  enhancing  throughout  the  commercial  world  the 
value  of  gold,  as  it  is  certain,  from  experience,  that  a 
production  very  largely  augmented  only  very  gradually 
and  after  a  considerable  interval  of  time  diminishes  its 
value.  The  mass  of  the  precious  metals  has  been  aptly 
compared  with  the  heavy  balance-wheel  in  mechanics, 
which  preserves  an  equable  and  working  condition  of  the 
machinery  under  any  sudden  increase  of  the  power,  and 
even  when  the  power  is  for  a  moment  withdrawn. 

Just  at  this  point  a  caution  is  needful.  Because  it  is 
affirmed  that  the  great  amount  of  the  precious  metals  is 
a  ground  of  their  firm  value,  it  must  not  be  supposed  that 
we  are  going  beyond  our  general  doctrine,  and  introducing 
another  element,  namely,  Quantity,  besides  the  four  .ele- 
ments, which,  as  we  have  so  often  alleged,  can  alone  vary 
the  value  of  any  Service.  Quantity,  in  itself,  is  not  an 
element  capable  of  varying  the  value  of  anything,  but 
taken  in  connection  with  durability,  it  is  an  element  of 
what  might,  perhaps,  be  called  with  propriety  the  Inertia 
of  Value,  and  tends  to  keep  the  purchasing-power  of  gold 
and  silver  where  it  is.  Value  and  Steadiness  of  Value  are 
two  distinct  ideas.  The  present  value  of  an  ounce  of  gold 
is  decided  by  four  things  alone,  two  Desires  and  two 
Efforts  ;  but  other  elements  besides  these  may  help  deter- 
mine that  that  ounce  of  gold  shall  have  ten  years  from 
now  a  purchasing-power  approximately  the  same  as  now. 
It  will  depend  of  course  in  the  last  analysis  upon  the 
relation  of  the  then  Demand  to  the  then  Supply  ;  yet  the 
vast  quantity  of  the  precious  metals  in  existence,  combined 
with  their  durability,  prevents  those  fluctuations  in  the 
Supply  which  are  so  destructive  to  a  steady  value.  It  is  not 
with  them  as  with  the  fruits  and  the  cereals,  whose  value 


MONEY.  ^  401 

varies  perpetually  with  the  seasons,  and  which  are  so 
perishable  that  they  must  be  sold  quick  or  never.  Gold 
and  silver  are  almost  indestructible,  and  the  existing  mass 
is  not  liable  to  be  lessened  except  by  wear  and  accident, 
and  in  so  far  as  the  annual  production  from  the  mines 
exceeds  the  yearly  waste  there  is  a  natural  provision  made 
for  the  natural  increase  of  Demand  to  supply  the  wants 
of  the  world  for  money  and  for  the  arts  without  much 
disturbing  the  relation  of  the  Demand  and  the  Supply ; 
and  so  Quantity  in  connection  with  durability  helps 
preserve  to  them  a  tolerably  steady  value  from  generation 
to  generation. 

(d)  On  account  of  their  Fluency.  Gold  and  silver  are 
in  demand  the  world  over.  Having  great  value  in  com- 
paratively small  bulk,  they  are  easily  transported  from 
Continent  to  Continent;  anci  whenever  from  any  cause 
they  become  relatively  in  excess  in  any  country,  and  so 
lose  there  a  portion  of  their  previous  purchasing-power, 
there  is  an  immediate  motive  in  profits  to  export  them  to 
other  countries,  in  which  their  power  in  exchange  is 
greater,  and  thus  the  equilibrium*  tends  to  restore  itself. 
The  proposition  is,  The  value  of  gold  and  silver  is  kept 
pretty  steady  throughout  the  commercial  world  by  the 
facility  with  which  they  are  carried  from  points  where 
they  are  relatively  in  excess  to  points  where  they  are  rela- 
tively in  deficiency.  In  any  country  or  place  where  the 
precious  metals  are  temporarily  in  excess,  the  prices  of 
general  commodities  as  measured  in  them  will  rise  of 
necessity,  because  the  unit  of  measure  is  smaller  than  it 
was ;  and  for  the  same  general  reason,  the  country  tempo- 
rarily lacking  in  these  will  experience  in  consequence  a 
fall  of  general  prices.  There  is,  therefore,  a  private  gain 
in  carrying  these  metals  to  those  countries  in  which  their 
power  of  purchase  is  the  greatest  owing  to  the  lack  of 


402  PRINCIPLES   OF   POLITICAL   ECONOMY. 

them,  because  more  commodities  can  be  obtained  in  ex- 
change for  them  than  at  home  ;  and  private  motives  here 
coincide,  as  indeed  they  generally  do,  with  public  wel- 
fare, since  what  the  traders  do  in  carrying  gold  and  silver 
abroad  with  an  eye  to  their  own  interest  only,  helps  main- 
tain at  home  and  abroad  the  steady  value  of  these  commod- 
ities. 

This  law  of  the  distribution  of  the  precious  metals  by 
Commerce,  and  the  equilibrium  of  their  general  value 
resulting  therefrom,  is  as  natural  and  beautiful  as  the  law 
which  preserves  the  level  of  the  ocean,  or  that  which  bal- 
ances the  bodies  of  the  planetary  system.  This  has  come 
at  length  to  be  recognized  by  the  nations,  and  the  laws 
which  used  to  forbid  by  heavy  penalties  the  exportation  of 
gold  and  silver  are  all  swept  away,  and  these  metals  are 
now  free  to  go  and  do  actually  go  wherever  they  can 
obtain  the  most  in  exchange.  It  is  absurd  to  suppose  that 
their  owners  would  carry  them  out  of  a  country  unless 
they  were  worth  more  abroad  than  at  home;  and,  there- 
fore, the  prejudice  which  still  exists  in  this  country  (the 
relics  of  itself)  is  a  senseless  prejudice.  The  gold  is  not 
given  away,  it  is  sold,  and  sold  for  more  than  it  will  buy 
at  home ;  otherwise  nothing  in  the  world  could  start  on  its 
foreign  travels.  There  is  the  same  kind  of  gain  in  this  as 
in  all  other  exchanges  of  commodities,  with  this  great  inci- 
dental advantage  in  addition,  that  its  general  value  is  by 
this  means  kept  pretty  uniform  throughout  the  commercial 
world. 

Unluckily  for  the  darker  and  middle  Ages,  so  far  as 
they  took  their  cue  and  thought  from  the  Romans,  the 
latter,  in  the  teeth  of  the  sound  view  of  Aristotle,  looked 
upon  Money  as  something  quite  different  from  other  forms 
of  salable  things,  looked  upon  it  in  short  as  an  end  in  itself, 
as  something  to  be  gained  and  not  readily  to  be  parted 


MONEY.  403 

with.  If  this  were  the  right  view  of  Money,  as  it  is  not, 
then  the  policy  to  spring  from  it  might  well  be,  —  Get  all 
the  money  possible  into  the  country,  and  let  as  little  as 
possible  out!  Just  this  came  to  be  the  policy  of  the 
Romans.  In  one  of  his  Orations,  Cicero  says,  "The  Senate 
solemnly  decreed  both  many  times  previously,  and  again  when 
I  was  consul,  that  gold  and  silver  ought  not  to  be  exported" 
The  other  and  the  true  opinion,  that  money  is  bought  and 
sold  like  any  other  valuable,  and  that  its  sole  peculiar  func- 
tion is  as  a  means  to  further  sales,  was  indeed  held  and 
argued  at  Rome,  as  we  learn  incidentally  from  a  passage  in 
the  Institutes  of  Justinian ;  but  the  false  though  plausible 
opinion,  that  money  is  ultimate,  and  not  mediate,  is  said  in 
the  same  passage  "  to  have  prevailed " ;  and  accordingly 
this  superficial  view  of  money,  and  that  it  "  ought  not  to 
be  exported,"  constitute  what  may  be  called  the  Bullion 
Theory,  and  it  is  the  first  general  theory  of  Sales  ever 
promulgated.  The  Romans  brought  it  forth,  and  other 
nations  took  it  from  them.  It  could  never  stand  in  the 
light  of  Reason,  and  still  less  amid  the  exigencies  of  prac- 
tical Commerce. 

It  is  an  illustration  of  the  continuity  of  human  thinking 
as  well  in  wrong  as  in  right  directions,  that  the  second  main 
theory  of  Sales,  which  has  long  been  styled  the  Mercantile 
Theory,  is  a  prolongation  and  expansion  of  the  first.  That 
gave  an  undue  weight  to  gold  and  silver  over  other  goods 
in  trade,  and  forbade  their  export :  this  did  the  same  thing 
too,  but  also  tried  to  swell  the  exports  of  other  goods 
beyond  the  worth  of  current  imports,  so  as  to  get  back  a 
balance  in  gold  and  silver :  both  alike  interfered  with  the 
international  fluency  of  the  precious  metals,  to  the  con- 
stant detriment  of  all  parties  to  the  restrictions.  The 
common  principles  of  both  Theories  may  be  thus  ex- 
pressed: G-old  and  silver  are  the  things  to  get;  they  are 


404  PRINCIPLES   OF   POLITICAL  ECONOMY. 

worth  more  than  what  they  will  buy  ;  therefore,  let  us  get  all 
of  these  in  that  we  can,  and  let  as  little  of  them  out  as  we 
can ;  and  let  us  work  all  our  trade  so,  that  others  shall  have 
to  give  us  a  balance  back  in  gold  and  silver.  These  false 
postulates  and  inferences  wrought  centuries  of  woe  in  the 
world  of  commerce,  because  all  the  leading  nations  became 
devotees  simultaneously  to  this  scheme  of  each  shrewdly 
plundering  the  rest.  The  germs  of  this  Mercantile  Theory 
appear  first  in  France,  when  Phillippe  le  Bel,  in  ordinances 
of  1303  and  1304,  put  his  hand  in  as  king  to  mend  the 
movement  of  trade,  to  forbid  the  export  of  gold  and  silver, 
to  fix  the  price  of  wheat  and  to  forbid  its  export,  and  to 
lessen  imports  by  prohibitions  of  them.  "  Considering  that 
our  enemies  might  profit  by  our  provisions,  and  that  it  is 
important  to  leave  them  their  merchandise,  we  have  ordered 
that  the  former  should  not  be  exported  nor  the  latter  im- 
ported" The  famous  Colbert,  who  laid  down  many  finan- 
cial maxims  that  are  good,  thought  nevertheless,  that  he 
could  so  mannage  the  foreign  trade  of  France  that  she 
should  get  the  better  of  her  neighbors,  and  embodied  his 
plan  in  the  tariff  of  1664.  We  will  let  him  state  his  plan 
in  his  own  words :  "  To  reduce  export  duties  on  provisions 
and  manufactures  of  the  Kingdom  ;  to  diminish  import  duties 
on  everything  which  is  of  use  in  manufactures  ;  and  to  repel 
the  products  of  foreign  manufactures  by  raising  the  duties" 
The  principle  of  the  Mercantile  Theory  was  never  better 
or  briefer  expressed  than  by  Ustariz,  a  Spaniard,  in  1740 : 
"  It  is  necessary  rigorously  to  employ  all  the  means  that  can 
lead  us  to  sell  to  foreigners  more  of  our  productions  than 
they  will  sell  us  of  theirs,  as  that  is  the  whole  secret  and  the 
sole  advantage  of  trade"  Too  many  nations  knew  the 
"  whole  secret "  at  the  same  time,  and  accordingly  the 
"sole  advantage"  to  any  became  exceedingly  small.  Eng- 
land was  as  deep  in  the  sloughs  and  wars  and  losses  of 
this  false  system  as  any  of  the  rest. 


MONEY.  405 

It  may  be  laid  down  as  an  axiom,  that  no  country  will 
ever  export  for  the  sake  of  buying  other  things  those 
things  which  are  more  needful  for  its  own  welfare  at 
home.  So  long  as  human  nature  continues  what  it  is, 
what  it  always  was,  what  it  always  will  be,  no  persons  in 
any  nation  will  ever  export  gold  and  silver  except  to  buy 
therewith  other  valuables  then  and  there  more  important 
to  them  and  consequently  to  their  country.  There  need 
not  be  the  slightest  fear  that  any  nation  which  cultivates 
its  own  commercial  advantages  under  freedom  will  ever 
lack  for  a  day  a  sufficient  quantum  of  the  precious  metals ; 
because  under  freedom  these  metals  will  always  go,  and 
go  in  just  the  right  proportions,  to  and  from  those  coun- 
tries which  produce  and  offer  in  exchange  those  desirable 
Services  which  other  countries  want.  The  greater  the 
enterprise  and  skill,  the  keener  the  development  of  all 
peculiar  and  presently  available  resources,  the  more  honor- 
able and  free  the  commercial  system,  so  much  the  surer  is 
any  nation  whether  it  be  a  gold-bearing  country  or  not,  of 
securing  all  the  gold  and  silver  which  it  needs.  This  is 
so,  because  there  will  be  a  good  market  to  buy  in,  an  abun- 
dance of  good  and  cheap  goods  will  be  there,  and  they  who 
have  gold  will  resort  thither  to  buy.  But  such  a  free  and 
enterprising  nation  will  also  want  to  buy  other  things 
besides  gold  and  silver,  and  other  things  than  those  itself 
can  make  or  grow  to  advantage,  and  when  enough  of  the 
precious  metals  is  secured  for  money  and  the  arts,  the 
residue  will  be  exported,  perhaps  to  the  very  countries 
from  which  it  originally  came,  in  payment  for  some  prod- 
ucts which  those  countries  have  an  advantage  in  pro- 
ducing. 

The  United  States,  for  example,  is  a  gold-  and  silver- 
bearing  country,  and  exported  in  the  years  1850-60,  both 
inclusive,  §502,789,759  in  coin  and  bullion,  according  to 


406  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  official  Report  on  the  Finances,  1863 ;  and  during  the 
same  period  imported  from  other  countries  $81,270,571  in 
coin  and  bullion.  Where  was  the  famous  and  fallacious 
"  balance  of  trade  "  in  that  case  ?  The  United  Kingdom, 
on  the  other  hand,  is  not  a  gold-  and  silver-producing 
country  at  all,  but  it  is  the  central  market  of  the  world  for 
the  precious  metals  all  the  same,  its  imports  and  exports 
of  them  are  immense  in  all  directions,  because  it  is  an 
enterprising  country  within  the  lines  of  Nature  in  agricul- 
ture and  manufactures  and  commerce,  and  is  not  afraid  to 
allow  its  people  to  buy  and  sell  freely  with  all  the  world. 
Where  lies  in  the  technical  sense  the  "  balance  of  trade  " 
between  Great  Britain  and  the  rest  of  the  world?  Who 
can  tell?  All  that  is  known,  and  all  that  is  worth  know- 
ing, is,  that  all  that  trade  is  immensely  profitable  to  all 
the  parties  to  it  wherever  situated. 

Now,  there  is  always  a  double  advantage  in  these  free 
movements  of  coin  and  bullion  in  exportation  and  importa- 
tion. In  the  first  place,  more  and  better  commodities  are 
secured  to  the  countries  exporting,  whether  they  be  gold- 
bearing  or  not,  than  the  gold  could  have  bought  in  those 
countries,  otherwise  it  would  not  have  been  carried  abroad, 
that  being  the  sole  motive  that  stirs  it  from  its  present 
haunts ;  and  in  the  second  place,  the  benefit  to  the  coun- 
tries importing  is  the  market  for  their  own  commodities 
created  by  the  gold  brought  in,  for  we  must  never  forget 
that  a  market  for  products  is  products  in  market,  is  a  bene- 
fit also  in  naturally  and  easily  filling  up  a  chance  deficiency 
in  the  quantum  of  coin  there,  and  incidentally  too  a  bene- 
fit to  the  world  as  tending  to  keep  in  equilibria  the  pur- 
chasing-power of  the  metals  everywhere.  This  Jast  is 
especially  seen  when  new  and  pregnant  sources  of  supply 
are  opened  in  any  country.  For  example,  in  the  United 
States  about  the  middle  of  the  century  the  stock  of  gold 


MOKEY.  407 

was  more  than  doubled  in  ten  years'  time ;  unless  by  much 
the  larger  part  of  this  had  been  carried  abroad  in  com- 
merce, it  would  have  inevitably  depreciated  the  whole 
mass  and  disturbed  the  prices  of  everything ;  but  by  caus- 
ing the  new  gold  to  impinge  on  the  whole  world's  stock,  the 
shock  of  the  new  production  on  the  measure  of  Services, 
though  perceptible,  was  reduced  and  deadened.  The 
world's  mass  of  the  precious  metals  is  comparatively  torpid 
beneath  the  action  of  an  accretion  which  would  break  down 
by  its  weight  the  metals  of  a  single  nation.  Therefore,  in 
conclusion  on  this  topic,  the  Fluency  of  gold  and  silver, 
by  which  they  pass  easily  in  commerce  to  those  places 
where  their  present  value  in  exchange  is  greatest,  or  to 
such  countries  as  India  and  China  which  have  shown  for 
centuries  a  wonderful  power  to  absorb  the  metals  of  the 
West,  and  return  as  easily  when  the  conditions  are  re- 
versed, or  when  a  larger  use  of  paper-credits  releases  some 
portion  of  the  coin,  tends  powerfully  to  make  their  general 
value  uniform  throughout  the  world,  and  consequently  to 
make  them  the  best  medium  of  Exchange  and  the  best 
measure  of  Services. 

(e)  On  account  of  this  Circumstance,  that  every  general 
rise  or  fall  in  the  value  of  gold  and  silver  tends  quickly  to 
check  itself.  This  principle,  indeed,  is  applicable  more  or 
less  to  the  value  of  all  commodities,  but  owing  to  their 
quantity  and  durability  and  fluency  pre-eminently  appli- 
cable to  the  value  of  the  precious  metals.  The  check  is 
double  in  either  direction.  First,  let  us  suppose  that  the 
purchasing-power  of  an  ounce  of  gold  or  silver  be  rising : 
then,  production  will  be  stimulated  at  all  the  mines,  and 
the  more  stimulated  as  the  rise  is  more  ;  and  this  new 
and  enlarged  Supply  will  tend  to  check  a  farther  rise,  and 
unless  the  permanent  Demand  has  been  in  the  meantime 
intensified,  to  bring  back  the  value  to  the  old  point ;  more- 


408  PRINCIPLES  OF  POLITICAL  ECONOMY. 

over,  when  there  is  a  rise  in  the  value  of  the  coin,  a  less 
quantity  is  required  to  do  the  same  amount  of  business ; 
and  the  demand  for  gold  which  causes  the  rise  tends  to  be 
checked  by  the  rise  itself,  because  a  lessened  quantity  is 
needed  for  money-use  in  consequence  of  the  rise.  If  the 
exchanges  mediated  by  money  have  become  permanently 
greater  than  before,  then  of  course  the  Demand  will  con- 
tinue greater  than  before,  and  the  rise  in  value  may  be 
maintained. 

And  just  so,  mutatis  mutandis,  of  a  fall  in  the  purchasing- 
power  of  the  coin.  The  production  of  the  metals  is  thereby 
slackened  at  the  mines,  and  the  lessened  Supply  tends 
naturally  to  enhance  the  value ;  and  if  the  same  amount  of 
business  is  to  be  done  as  before,  there  is  a  stronger  demand 
for  money  while  the  fall  continues,  and  this  new  Demand 
helps  also  to  bring  back  the  old  value.  All  this  is  in  the 
interest  of  a  steady  value. 

(f)  On  account,  lastly,  of  this  Circumstance,  that  a 
stronger  Demand  for  Money  is  met  in  either  one  of  two 
ways,  by  increasing  the  stock  of  coin,  or  by  an  increased 
rapidity  of  circulation  of  that  on  hand.  It  is  exceedingly 
fortunate  that  a  brisker  demand  for  money,  especially  if  it 
be  but  temporary,  does  not  necessarily  enlarge  the  Supply 
or  alter  the  value,  but  only  hurries  round  the  existing 
money.  Oscillations  in  the  Demand  are  responded  to  by  a 
slower  or  a  more  rapid  circulation.  This  tends  admirably  to 
keep  the  value  of  the  existing-stock  of  money  steady  within 
certain  limits.  Ignorance  of  this  principle,  or  indifference 
to  it,  has  caused  mighty  mischiefs  in  the  United  States. 
In  General  Grant's  administration,  for  instance,  the  cry  that 
a  larger  volume  of  money  was  needed  "  to  move  the  crops"  was 
disastrous  in  its  results.  The  truth  is,  that  the  volume  of 
Money  in  the  United  States  was  then,  and  has  been  ever 
since,  by  much  too  great,  considering  its  character,  as  we 


MOKEY.  409 

shall  see  by  and  by.  The  multiplying  and  fructifying 
nature  of  Rapidity  of  Circulation  has  never  been  understood 
by  our  national  financiers.  When,  however,  enterprises 
are  multiplying  and  Exchanges  are  being  permanently 
increased  in  number  and  variety,  then  there  must  be  a  larger 
volume  of  money,  and  this  larger  amount  is  secured  in  the 
ways  already  indicated,  with  perhaps  slight  disturbances  of 
value,  but  the  temporary  ebbs  and  flows  of  business  should 
have  no  effect  at  all  on  the  mass  of  money,  but  only  on  its 
movement,  and  its  value  consequently  would  scarcely  be 
disturbed. 

These  Six  grounds  appear  to  be  satisfactory  and  sufficient 
to  account  for  the  superior  steadiness  of  the  value  of  gold 
and  silver,  so  far  as  their  value  is  determined  by  consid- 
erations relating  to  these  metals  themselves.  We  now 
proceed  to  the  two  reasons  additional  to  this  why  gold  and 
silver  constitute  the  best  Money. 

(2)  The  second  general  reason  why  gold  and  silver 
make  the  best  money  is  found  in  the  fact  that  Governments 
have  little  to  say  or  do  about  the  Value  and  Quantity  and 
Mode  of  Circulation  of  such  Money.  In  respect  to  Credit- 
Moneys,  like  our  own  Greenbacks  and  national  Bank-Bills, 
the  Government  has  everything  to  say.  When  we  re- 
member how  governments  are  constituted,  that  they  are 
only  a  transient  Committee  of  the  citizens  for  special 
purposes ;  of  what  sort  of  persons  they  commonly  consist ; 
the  variety  of  subjects  they  are  obliged  to  consider  during 
short  periods  of  office ;  the  absence  for  the  most  part  of 
expert  knowledge  among  them ;  the  enormous  blunders 
they  have  made  in  the  past  in  all  financial  measures ;  and 
that  those  who  know  the  most  about  their  action  in  the 
past  and  present  in  such  matters  have  the  least  confidence 
in  their  ability  to  act  wisely ;  the  better  we  shall  see  the 
strength  of  the  grounds  of  this  second  reason.  In  all 


410  PRINCIPLES   OF   POLITICAL   ECONOMY. 

essential  respects  money  of  gold  and  silver  regulates  itself. 
These  metals  came  to  be  money  and  continue  to  be  money 
in  the  main  sense  independent  of  the  enactments  of  any 
Government.  The  people  chose  them :  they  choose  them 
still.  As  we  have  seen,  coins  do  not  owe  their  value  to  the 
stamp  of  the  Government,  since  the  metal  in  them  is  worth 
within  a  trifle  as  much  before  coinage  as  after.  Coinage 
publicly  attests  the  quantity  and  quality  of  the  metal  in 
the  coin,  and  that  is  all.  Of  the  value  of  their  coins  govern- 
ments say  nothing.  They  can  say  nothing.  That  depends 
on  men's  judgments,  and  not  on  edicts  at  all.  No  law  of 
the  United  States  can  add  directly  an  appreciable  fraction 
to  the  value  of  a  gold  dollar.  The  law  makes  it  consist  of 
25f  grains  troy  of  gold  -f$  fine,  the  mint  so  stamps  and 
attests  it,  and  thereafter  it  takes  its  own  chance  as  to  value. 

Some  Governments  charge  a  little  something  for  coining 
for  their  People,  and  some  do  not.  What  is  charged  is 
called  seignorage.  England  coins  gold  for  all  comers  at  a 
seignora'ge  of  .032%,  which  is  practically  a  free  coinage. 
France  charges  for  gold  .216%  ;  and  by  the  law  of  1874, 
the  United  States  charge  nothing  for  coining  gold.  It  is 
left  to  the  People  to  say  how  much  money  they  will  have 
coined ;  and,  having  received  it  back  from  the  mint,  they 
may  do  just  what  they  please  with  it;  they  may  hoard  it, 
they  may  melt  it,  they  may  sell  it  at  home  in  purchase,  and 
they  may  export  it  in  foreign  trade,  at  will.  Now,  it  is  a 
great  gain,  an  immense  relief,  to  have  a  Money  with  which 
the  Government  has  nothing  to  do  except  to  mint  it;  a 
money  that  asks  no  favors,  needs  no  puffing,  never  deceives 
anybody,  knows  how  to  take  care  of  itself,  is  always 
respectable  and  everywhere  respected. 

(3)  The  last  general  reason  why  gold  and  silver  make 
the  best  Money  is  to  be  found  in  their  physical  pecu- 
liarities, in  accordance  with  which  they  are  (a)  uniform  in 


MONEY.  411 

quality,  (b)  conveniently  portable,  (c)  divisible  without  loss, 
(d)  easily  impressible,  and  (e)  always  beautiful. 

Pure  gold  and  pure  silver,  no  matter  where  they  are 
mined,  are  exactly  of  the  same  quality  all  over  the  earth. 
Not  so  with  iron  and  coal  and  copper.  Gold  is  gold,  and 
silver  is  silver.  The  gold  mined  to-day  in  California  dif- 
fers in  no  essential  respect  from  the  gold  used  by  Solomon 
in  the  construction  of  the  Temple,  and  the  silver  out  of 
the  Nevada  mines  is  the  same  thing  as  the  silver  paid  by 
Abraham  for  the  cave  of  Machpelah.  Nature  with  her 
wise  finger  has  thus  stamped  them  for  the  universal  money; 
and  a  universal  coinage,  that  is,  coins  of  the  same  degree 
of  fineness,  and  brought  into  easy  numerical  relations  with 
each  other  in  respect  to  weight,  and  current  everywhere 
by  virtue  of  universal  confidence  in  them,  though  bearing 
the  symbols  preferred  by  the  nation  that  mints  them,  is 
one  of  the  dreams  and  hopes  of  economists,  that  will  be 
realized  in  some 

"  Fair  future  day 
Which  Fate  shall  brightly  gild." 

Gold  and  silver  are  sufficiently  portable  for  all  the  pur- 
poses of  modern  Money.  Their  weight  is  little  relatively 
to  their  value.  A  thousand  dollars  in  gold  are  not  indeed 
carried  so  easily  as  a  Bill  of  Exchange  or  a  Bank-note ; 
and  expedients  are  easily  adopted,  and  have  been  in  use 
since  the  days  of  the  Romans  (really  since  the  later  days 
of  the  Assyrians),  by  which  the  transfer  in  place  of  large 
masses  of  coin  is  for  the  most  part  obviated;  and  these 
expedients  have  all  been  explained  at  length  in  the  fore- 
going chapter  on  Commercial  Credits.  But  for  the  ordi- 
nary exchanges  for  which  they  are  designed,  gold  and 
silver  coins  are  portable  enough.  The  writer  has  carried 
across  the  ocean,  incased  in  a  glove-finger  and  borne  in  a 


412  PRINCIPLES   OF   POLITICAL  ECONOMY. 

vest-pocket,  a  troy  pound  of  English  sovereigns,  worth 
about  $230,  scarcely  conscious  of  their  weight  though  easily 
reassured  of  their  presence  by  a  touch  of  the  hand.  The 
experience  of  those  countries,  like  France  and  Germany, 
in  which  the  Money  has  been  and  is  still  mostly  metallic, 
has  not  pronounced  it  onerous  on  account  of  its  weight ; 
and,  at  any  rate,  it  is  better  to  accept  all  the  other  immense 
advantages  of  gold  and  silver  money,  together  with  some 
inconvenience  as  to  weight,  if  one  chooses  to  insist  on 
that,  than  to  adopt  substitutes  every  way  inferior  as  money, 
except  that  they  are  lighter  in  our  purses.  They  are  un- 
fortunately "  lighter  "  in  other  respects  also. 

Moreover,  gold  and  silver  differ  from  jewels  and  most 
other  precious  things,  in  that  they  are  divisible  without  any 
loss  of  value  into  pieces  of  any  required  size.  The  aggre- 
gate of  pieces  is  worth  as  much  as  the  mass  and  the  mass 
as  much  as  the  pieces.  This  is  a  great  advantage  in 
Money,  because  for  the  convenience  of  business  a  consider- 
able variety  of  coins  is  required,  and  the  proper  proportion 
of  each  kind  to  the  rest  is  a  matter  of  trial,  and  if  any 
kind  be  minted  in  excess  of  the  demand  nothing  more  is 
required  than  to  remint  in  other  denominations,  and  the 
whole  value  is  thus  saved  to  the  country  in  the  most  con- 
venient form. 

Then,  gold  and  silver  are  easily  impressible  by  any  stamp 
which  the  Government  chooses  to  put  upon  them.  Indeed 
in  their  natural  state  they  are  too  soft  to  retain  long  the 
impress  of  the  die.  Accordingly  for  coinage  purposes  they 
are  always  alloyed  with  another  metal,  chiefly  copper, 
since  by  a  chemical  law  whenever  two  such  metals  are 
mixed  together  the  compound  is  harder  than  either  of  the 
two  ingredients.  Most  of  the  Nations  now  .use  in  their 
gold  and  silver  coins  -^  alloy,  but  England  still  adheres  to 
her  ancient  rule  of  -fa  only-  So  compounded  coins  receive 


MOKEY.  413 

readily  and  retain  for  a  long  time  with  sharp  distinctness 
the  legend  and  other  devices  chosen  for  them  to  bear.  In 
monarchical  countries  the  head  of  the  reigning  sovereign 
is  usually  stamped  upon  the  current  coins ;  in  all  countries 
national  emblems  of  some  sort ;  quite  recently  some  of  the 
coins  of  the  United  States  have  been  made  to  bear  the 
appropriate  legend  "  In  God  we  trust "  ;  so  that  patriotic 
and  even  religious  associations  are  connected  with  the 
national  Money.  Although  the  alloys  harden  the  coins, 
yet  after  long  usage  they  will  lose  a  part  of  their  weight 
by  abrasion,  and  Governments  usually  indicate  a  short 
weight,  after  coming  to  which  the  coins  are  no  longer  a 
legal  tender  for  debts.  Thus  an  English  sovereign  weighs 
5  pennyweights  3i|-J  grains,  containing  HSg-J-g-  grains  of 
fine  gold,  and  when  it  falls  below  5  pennyweights  2|  grains, 
it  loses  its  legal-tender  character. 

Lastly,  gold  and  silver  when  coined  into  Money  are 
objects  of  great  beauty.  This  is  no  slight  recommendation 
of  these  metals  for  the  money  of  the  world.  They  are 
clean.  They  are  beautiful.  People  like  to  see  them,  and 
to  handle  them,  and  to  have  them.  Their  perfectly  circu- 
lar form,  the  device  covering  the  whole  piece,  the  milled 
and  fluted  edges,  the  patriotic  emblem,  whatever  it  be,  the 
religious  or  other  legend,  and  their  bright  color,  are  all 
elements  in  their  beauty.  The  educating  power  over  the 
young  of  a  good  coinage  well  kept  up,  aesthetically,  his- 
torically, and  commercially,  is  a  matter  of  consequence  to 
any  country.  A  whole  people  handling  constantly  such 
money  cannot  fail  to  receive  a  wholesome  development 
thereby.  The  new  German  coinage,  for  example,  in  con- 
trast with  the  old  moneys  of  the  German  States,  furnishes 
a  good  illustration  of  all  this.  The  new  German  coins 
from  highest  to  lowest  are  very  beautiful,  and  have  al- 
ready tended  and  will  tend  more  and  more,  other  things 
being  equal,  to  a  true  German  nationality. 


414  PRINCIPLES   OF  POLITICAL  ECONOMY. 

11.  Silver  is  much  inferior  to  gold  as  a  metal  for 
Money,  for  this  main  reason,  that  it  has  proved  itself  much 
less  steady  in  its  general  value;  and  its  value  is  less 
steady,  because  it  is  subject  to  greater  changes  in  its  Sup- 
ply and  greater  variations  in  its  Demand.  As  an  example 
touching  Supply,  we  cite  the  fact,  that  the  annual  silver 
product  of  the  world  doubled  in  the  third  quarter  of  this 
Century,  rising  from  an  average  of  140,000,000  yearly, 
1851-61,  to  $80,000,000  in  1875;  and  that  Nevada  alone 
yielded  in  1876  as  much  as  the  whole  world  yielded 
twenty  years  before.  Then,  too,  Demand,  that  is,  effective 
public  opinion,  does  not  hold  to  silver  as  it  does  to  gold 
for  a  standard  of  Values.  The  action  of  England  in  1816, 
of  the  United  States  in  1853,  of  Germany  in  1871,  of 
Scandinavia  in  1874,  and  of  the  Latin  Union  in  1876,  in 
legally  making  gold  the  sole  standard  of  Services  and  silver 
subsidiary  to  that,  of  course  affected  more  or  less  the 
Demand  for  silver  as  Money,  and  thus  varied  its  value. 
We  have  at  hand  the  data  to  demonstrate  the  effect  of 
these  two  causes  combined :  the  average  price  of  silver  in 
gold  from  1833  to  1874,  in  the  London  market,  which  is 
the  bullion  market  of  the  world,  was  for  the  40  years  just 
about '60  pence  per  ounce,  never  falling  below  58 J  and 
never  rising  to  63.  At  60  pence  per  ounce  (444  grains 
of  pure  silver,  standard  English  silver  being  .925  fine)  the 
ratio  of  gold  to  silver  is  1 : 15.716.  But  between  May, 
1875,  and  July,  1876,  when  both  the  above  causes  had  come 
into  full  action,  silver  dropped  in  the  London  market  to 
47  pence  per  ounce,  a  fall  of  21%,  and  a  ratio  of  gold  to 
silver  of  1 :  20.  The  price  gradually  rose  again  to  about 
53  pence  per  ounce,  and  remained  in  that  general  neigh- 
borhood till  1882,  between  which  date  and  1890  the  sag- 
ging process  went  on  to  the  general  result  of  25%  discount 
as  compared  with  the  old  average  of  60  pence  in  gold  per 
ounce  of  silver. 


MONEY.  415 

These  facts  settle  the  question  adversely  to  the  fitness 
of  silver  to  become  an  independent  Measure  of  Values. 
When,  however,  it  is  designed  that  gold  and  silver  shall 
circulate  together  in  some  numerical  relation  to  each 
other  as  Money,  it  becomes  needful  that  Government  shall 
fix  as  well  as  it  can,  not  the  general  value  of  either  but 
the  relative  value  each  in  each  for  the  time  being.  But 
this  specific  value,  too,  goes  on  to  regulate  itself  indepen- 
dently of  government  edicts.  No  matter  how  well  the 
work  is  done  at  first  by  ascertaining  the  actual  ratio  in 
which  they  are  exchanging  in  a  free  market,  it  will  cer- 
tainly require  revision  from  time  to  time.  This  is  what  is 
called  Bimetallism.  The  reader  will  now  perceive  the  fun- 
damental and  ineradicable  difficulty  with  the  bimetallic 
system,  which  has  led  by  bitter  experience  nearly  all  the 
European  nations  to  abandon  it.  It  especially  becomes  us 
to  understand  how  the  United  States  have  fared  in  a  cen- 
tury's attempt  to  keep  in  equilibria  as  a  conjoint  and  legal 
Measure  of  Services  both  gold  and  silver  in  a  fixed  numeri- 
cal relation. 

Alexander  Hamilton  as  the  first  Secretary  of  the  Na- 
tional Treasury,  entering  upon  excellent  preparatory  work 
done  both  by  Robert  Morris  and  Thomas  Jefferson,  guided 
the  action  of  Congress  in  establishing  the  Mint  in  1792, 
and  really  determined  the  weight  and  fineness  of  the  first 
federal  coins  and  their  relative  value  each  in  each,  the 
silver  coins  being  struck  in  1794  and  the  gold  ones  in 
1795.  The  silver  dollar  was  copied  from  the  Spanish 
milled  dollar  of  commerce,  which  contained  371.25  grains 
of  pure  silver,  and  that  has  been  the  exact  content  of  our 
national  silver  dollar  from  that  day  to  this.  The  halves 
and  quarters  and  dimes  were  exactly  proportioned  in 
weight  and  fineness  to  their  units.  Hamilton  supposed 
that  gold  was  then  worth  in  Europe  15  times  as  much  as 


416  PRINCIPLES    OF   POLITICAL   ECONOMY. 

silver,  and  advised  consequently  that  the  gold  dollar 
should  contain  24.75  grains  pure,  and  that  both  dollars 
should  be  alloyed  at  the  English  rate  of  y1^,  thus  making 
the  silver  dollar  weigh  405  grains  and  the  gold  dollar  27 
grains ;  but  Congress,  while  enacting  the  gold  dollar  just 
as  the  Secretary  recommended,  preferred  to  alloy  the  silver 
dollar  by  44.75  grains  instead  of  33.75,  thus  making  its 
weight  416  grains.  Alloy  is  of  no  account  in  value. 

From  the  ratio  of  1  :  15  fixed  by  the  act  of  Congress  in 
accord  with  Hamilton's  opinion  as  to  the  relative  value  of 
gold  in  silver  to  be  maintained  in  the  coins,  unforeseen 
and  important  consequences  followed,  since  that  was  not 
the  true  ratio  of  their  value  at  the  time  in  the  markets  of 
the  world ;  an  ounce  of  gold  was  worth  more  at  that  time 
than  15  ounces  of  silver,  and,  accordingly,  was  worth 
more,  out  of  the  coinage  than  in  it,  and  was  therefore 
exported  in  preference  to  silver  in  payment  of  foreign 
balances,  especially  after  France  had  changed  the  relative 
legal  value  to  1  :  15£,  which  happened  in  1803 ;  and  of 
course  the  gold  refused  to  circulate  here  under  those 
circumstances,  being  undervalued  in  the  coinage,  thus 
giving  a  neat  illustration  of  the  economical  law  to  be 
unfolded  under  the  next  numerical  heading,  namely,  that 
the  cheaper  money  will  always  push  the  dearer  out  of  the 
circulation.  Not  till  1834  was  the  attention  of  Congress 
so  strongly  drawn  to  this  fact  and  consequence,  as  to 
secure  an  enactment  to  remedy  it ;  and  this  coinage  law 
of  1834  rated  gold  to  silver  as  1  :  15.98.  The  weight  of 
the  gold  dollar  was  at  the  same  time  reduced  from  27  to 
25.8  grains,  and  the  alloy  increased  from  ^  to  T^.  These 
changes  of  1834  increased  the  relative  legal  valuation  of 
gold  in  silver  6.53%.  But  this  in  turn  was  going  too  far 
in  the  opposite  direction  ;  gold  was  not  worth  1  :  15.98  in 
the  bullion  markets  of  Europe  ;  France  was  holding  steady 


MONEY.  417 

her  ratio  of  1  :  15.50  ;  and,  consequently,  the  commercial 
current  of  the  metals  was  now  reversed,  silver  passing  in 
preference  to  Europe  to  liquidate  the  balances  of  trade, 
and  gold  beginning  to  come  to  the  United  States,  where 
it  would  buy  more  than  3%  more  silver  than  in  Europe. 

Three  years  after  the  above  changes,  that  is,  in  1837, 
the  standard  of  T%  fine  instead  of  11  was  applied  by  law  to 
silver  also,  and  this  altered  fineness  made  a  change  in  the 
weight  of  the  silver  coins  necessary,  if  the  ratio  of  1 : 15.98 
was  to  be  maintained  between  the  gold  and  silver. 
Accordingly,  the  weight  of  the  silver  dollar,  and  of  two 
halves,  four  quarters,  and  so  on,  was  reduced  from  416 
grains  to  412^,  that  is  to  say,  less  alloy  was  put  into  the 
silver  coins,  but  the  fine  silver  to  the  dollar  was  kept  just 
as  it  was,  namely,  371.25  grains.  Since  1834  there  has 
been  no  change  in  the  gold  dollar  and  its  multiples,  and 
since  1837  there  has  been  no  change  in  the  silver  dollar- 
piece,  and  the  legal  ratio  of  value  between  gold  and  silver 
in  our  coins  is  still  1  :  15.98,  since  the  silver  dollar  of  1878 
and  onwards  to  1890  corresponds  in  weight  and  fineness 
with  the  dollar  of  1837. 

Still,  notwithstanding  the  pains  taken  and  the  changes 
made  from  time  to  time  to  keep  the  two  metals  in  legal 
equilibria,  there  never  has  been  any  considerable  period 
in  the  century  now  drawing  to  a  close,  during  which  gold 
dollars  and  silver  dollars  have  circulated  freely  and  in- 
differently in  the  United  States.  Sometimes  it  has  been 
the  one  kind,  and  sometimes  the  other  kind,  but  never 
both  kinds  at  the  same  time.  The  present  writing  is  in 
the  spring-time  of  1890 :  both  kinds  of  dollars  are  legal 
tender  for  all  debts  public  and  private  in  the  old-time 
ratio ;  the  national  Government  professes  to  be  indifferent 
whether  it  pay  out  gold  or  silver  in  redemption  of  its 
paper-moneys,  but  after  all,  with  the  exception  of  the 


418  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Pacific  States  and  a  few  special  branches  of  business  in 
the  cities  of  the  East  and  of  the  Middle,  gold  coins  are  not 
now  in  common  circulation,  the  bank  drawers  crowded 
with  silver  dollars  feel  little  of  the  weight  and  see  little 
of  the  shine  of  the  gold  coins,  and  if  any  of  these  chance 
to  be  paid  out  to  ordinary  bank-customers  they  are  pretty 
certain  to  return  in  speedy  deposit.  The  theoretical 
bimetallism  of  the  United  States  has  been  a  practical 
though  alternate  monometallism  with  various  incidental 
and  concurrent  disadvantages  and  losses. 

By  1853  these  disadvantages  of  a  long-attempted  double 
Measure  of  Services  made  legal  tender  for  all  debts  had 
become  plain  enough  to  everybody,  for  experience  had 
demonstrated  that  the  Value  of  gold  and  silver  each  in 
each  was  not  constant  but  constantly  variable ;  and  Con- 
gress then  wisely  determined  to  make  Gold  alone  the 
legal  tender,  except  in  sums  below  $5.  In  connection 
with  this  great  change  in  the  coinage,  a  lesser  one  was 
introduced  at  the  same  time,  namely,  to  reduce  the  weight 
of  the  silver  half-dollar  and  its  subdivisions,  so  that  their 
nominal  value  in  the  coinage  should  be  considerably  above 
their  metallic  value,  and  their  exportations  be  thus  pre- 
vented. Accordingly,  the  half-dollar  was  reduced  in 
weight  from  206J  to  192  grains,  and  the  smaller  coins 
proportionally.  This  was  in  imitation  of  the  English 
legislation  of  1816,  and  brought  into  this  country  a  sub- 
sidiary silver  coinage,  which  still  continues,  and  of  which 
a  nominal  dollar's  worth  weighed  6.91%  less  than  the 
Silver  Dollar,  which  was  not  mentioned  one  way  or  the 
other  in  the  law  of  1853,  but  which  was  then  worth  about 
three  cents  more  than  the  gold  dollar,  and  was  of  course 
wholly  out  of  circulation. 

Through  the  influence  of  the  late  Samuel  B.  Ruggles, 
these  subsidiary  silver  coins  were  brought  in  1875  into 


MONEY.  419 

harmony  with  the  silver-system  of  France  and  the  Latin 
Union.  Their  five-franc  silver  piece  which  is  also  -f$  fine, 
weighs  just  25  grams  or  385.8  grains  ;  a  dollar's  worth  of 
our  subsidiary  silver,  as  we  have  just  seen,  weighed  384 
grains ;  and  it  was,  therefore,  needful  to  add  only  a  slight 
fraction  of  weight  to  our  smaller  silver  coins  in  order  to 
knit  a  real  connection  between  them  and  much  of  the 
European  silver.  Two  halves,  four  quarters,  ten  dimes  of 
our  silver  since  1875,  are  debased  in  weight  (not  in  fine- 
ness) 6.47%  as  compared  with  the  standard  silver  dollar. 
A  more  important  coinage  connection  with  Europe  was 
knit  through  our  first  five-cent  nickel  pieces,  each  of  which 
weighs  just  five  grams,  and  five  of  which  laid  along  in  order 
measure  exactly  a  decimetre  in  length.  These  were  the 
first  official  applications  of  the  Metric  System  on  the  part 
of  the  United  States.  The  nickel  pieces,  both  the  five- 
cent  and  the  three-cent,  are  75  parts  copper  and  25  parts 
nickel ;  and  the  one-cent  piece  is  95  parts  copper  and  5 
parts  tin-zinc.  Debts  of  4  cents  can  be  legally  paid  in  one- 
cent  pieces,  of  60  cents  in  three-cent  pieces,  of  100  cents 
in  five-cent  pieces,  of  500  cents  in  subsidiary  silver,  and  of 
any  amount  in  gold  coins  or  in  silver  dollars. 

12.  A  money  inferior  in  general  value  will,  so  long  as  it 
circulates  locally,  drive  a  superior  money  out  of  the  circula- 
tion. This  proposition  is  a  fundamental  and  universal  one 
in  monetary  Science.  The  only  exception  to  it  is  found  in 
token-coins,  and  in  subsidiary  silver  so  far  as  that  has  the 
token-quality,  that  is,  so  far  as  its  nominal  is  above  its  bullion 
Value.  The  main  motive  in  coining  tokens  is  to  make  sure 
for  its  own  local  uses  of  a  nation's  small  change.  Token- 
money  is  worthless  for  export,  is  only  designed  for  the 
smaller  exchanges,  is  legal  tender  only  for  very  small  sums, 
and  is  acceptable  only  on  local  and  conventional  grounds. 
The  exception  aside,  the  above  proposition  is  a  pervading 


420  PRINCIPLES   OF   POLITICAL   ECONOMY. 

and  controlling  Law  of  Finance  and  has  been  illustrated 
over  and  over  again  in  every  Age  and  Nation.  It  is  as 
solid  as  the  substance  of  truth  can  make  it,  although  it 
looks  at  first  sight  like  a  paradox.  We  naturally  think 
that  what  is  excellent  all  round  tends  rather  to  displace 
what  is  inferior  in  spots,  but  with  Money  the  exact  reverse 
is  the  law ;  and  the  perfect  coin  of  full  weight,  instead  of 
driving  out  the  light  and  the  debased  pieces,  is  always 
itself  driven  out  of  the  circulation  by  them. 

The  reason  for  this  becomes  obvious  the  moment  we 
ponder  the  nature  of  Money.  Money  is  always  a  Valua- 
ble, taking  on  in  addition  under  Law  or  Custom  the  func- 
tion of  serving  as  an  instrument  of  Exchange.  As  money, 
nobody  wants  it  except  to  buy  with,  and  so  long  as  the 
Government  and  the  community  treat  light  coin  and  full 
coin  as  of  equal  value,  receiving  them  indifferently  in  pay- 
ment of  debts  and  of  taxes,  it  is  clear  that  nobody  will 
give  in  payment  of  debts  and  of  taxes  that  which  is  really 
worth  more  so  long  as  that  which  is  really  worth  less  will 
go  just  as  far.  The  inferior  pieces  will  abide  in  a  market 
where  they  will  fetch  just  as  much  as  the  superior  pieces, 
while  the  superior  pieces  will  take  on  a  form  or  migrate  to 
a  place  in  which  some  advantage  can  be  gained  from  their 
superiorHTy.  Thrown  into  the  crucible,  or  exported  in 
commerce,  this  superiority  immediately  manifests  itself; 
and  therefore  into  the  crucible  or  into  the  channels  of 
foreign  trade  it  might  be  confidently  predicted  beforehand 
that  such  money  would  be  thrown,  and  all  experience  tes- 
tifies with  one  voice  that  exactly  those  are  the  destinations 
of  such  money. 

Aristophanes,  the  Greek  comic  poet,  in  the  5th  century 
before  Christ,  seems  to  have  been  the  first  writer  who 
noticed  that  good  coins  of  full  weight  are  apt  to  be 
crowded  out  of  the  circulation  by  the  lighter  and  poorer 


MONEY.  421 

pieces,  and  he,  mistaking  the  cause  of  this,  satirized  his 
countrymen  unmercifully  for  preferring  bad  coins  to  good, 
and  demagogues,  like  Cleon,  to  honorable  citizens  for 
rulers.  The  following  are  the  verses :  — 

"  Oftentimes  have  we  reflected  on  a  similar  abuse, 
In  the  choice  of  men  for  office,  and  of  coins  for  common  use ; 
For  your  old  and  standard  pieces,  valued  and  approved  and  tried, 
Here  among  the  Grecian  nations,  and  in  all  the  world  beside, 
Recognized  in  every  realm  for  trusty  stamp  and  pure  assay, 
Are  rejected  and  abandoned  for  the  trash  of  yesterday ; 
For  a  vile,  adulterate  issue,  drossy,  counterfeit,  and  base, 
Which  the  traffic  of  the  city  passes  current  in  their  place ! 
And  the  men  that  stood  for  office,  noted  for  acknowledged  worth, 
And  for  manly  deeds  of  honor,  and  for  honorable  birth ; 
Trained  in  exercise  and  art,  in  sacred  dances  and  in  song, 
All  are  ousted  and  supplanted  by  a  base,  ignoble  throng ; 
Paltry  stamp  and  vulgar  metal  raise  them  to  command  and  place, 
Brazen  counterfeit  pretenders,  scoundrels  of  a  scoundrel  race, 
Whom  the  State  in  former  ages  scarce  would  have  allowed  to  stand 
At  the  sacrifice  of  outcasts,  as  the  scapegoats  of  the  land." 

Sir  Thomas  Gresham,  financier  of  Queen  Elizabeth  and 
founder  of  the  Royal  Exchange  and  of  Gresham  College 
in  London,  was  the  first  thinker  to  understand  fully  and 
explain  scientifically  what  Aristophanes  and  others  had 
noticed  as  a  fact,  and  what  in  its  explanation  may  hence 
properly  be  called  "  G-resham's  Law"  We  will  append  a 
few  historical  illustrations  of  the  fact  and  the  law  as 
instructive  in  many  ways. 

(a)  The  City  of  Amsterdam  founded  its  famous  Bank 
in  1609,  because  no  other  way  seemed  to  open  of  prevent- 
ing the  clipped  and  worn  foreign  coins  then  and  for  a 
long  time  circulating  in  that  great  Mart  of  Trade  from 
driving  out  completely  the  good  money  of  full  weight, 
which  the  Mint  of  the  City  had  been  constantly  pouring 
in.  The  Bank  was  devised  as  a  municipal  Institution  with 


422  PRINCIPLES    OF   POLITICAL   ECONOMY. 

this  intent ;  it  was  a  Bank  of  Deposit  only ;  it  took  in  all 
the  old  coins  at  their  bullion  value  only ;  and  then  had  them 
reminted  at  full  weight ;  it  gave  the  depositors  credit  on 
its  books  in  the  terms  of  the  new  money  for  all  of  the  old 
they  chose  to  bring  in ;  it  then  adjusted  accounts  between 
merchants  and  all  other  of  its  customers  by  mere  transfers 
on  its  books :  the  City  required  all  debts  falling  due  in 
Amsterdam  to  be  paid  in  the  new  "  bank-money,"  which 
took  away  all  uncertainty  from  Bills  of  Exchange  drawn 
on  Amsterdam,  which  were  previously  liable  to  be  paid  in 
the  clipped  and  worn  coin,  and  were  therefore  sometimes 
at  as  much  as  10%  discount  in  other  cities;  this  simple 
requirement  brought  these  foreign  bills  to  par,  and  kept 
them  there ;  the  full-weighted  money  now  stamped  by  the 
city  Mint  abode  in  the  circulation,  being  now  the  sole 
Measure  of  Services  there  ;  and  thus  it  became  the  interest 
and  convenience  of  every  business  man  in  Amsterdam  to 
have  these  simple  dealings  with  the  Bank,  which  in  turn 
enjoyed  unlimited  credit  in  the  commercial  world  for  almost 
two  hundred  years. 

(b)  The  great  English  Recoinage  of  1696  was  completed 
under  the  imperatives  of  Gresham's  Law.  Graphically  does 
Macaulay  describe  the  causes  and  the  effects  of  this  in  his 
21st  Chapter.  The  old  silver  coins  had  been  stamped  under 
the  hammer ;  few  of  them  were  perfectly  circular ;  the  edges 
were  neither  milled  nor  fluted ;  the  legend  was  not  so  near 
the  edge  as  that  the  letters  were  impaired  by  a  little 
clipping ;  it  was  easy  to  pare  off  a  pennyworth  or  two,  and 
then  pass  the  coins  along ;  it  was  profitable  to  do  it,  and  in 
vain  that  Elizabeth  enacted  that  the  clipper  must  suffer  the 
penalties  of  high  treason ;  nearly  all  the  coin  of  the  realm 
became  mutilated,  and  about  1660  a  new  process  of  coinage 
was  brought  in.  A  mill  worked  by  horses  fabricated  the 
new  coins  on  better  principles.  They  were  exactly  round, 


MONEY.  423 

and  the  edges  were  inscribed  with  a  legend,  and  they  were 
all  of  just  and  equal  weight.  They  were  thrown  out  to 
pass  current  with  the  hammered  money,  and  it  seems  to 
have  been  expected  that  they  would  soon  come  to  displace 
it.  But  they  did  not.  Both  were  received  at  first  without 
distinction  by  the  individual  traders  and  by  the  public  tax- 
gatherers.  But  the  milled  money  soon  came  to  be  scarce, 
and  the  old  money  grew  constantly  worse.  The  lighter  the 
old  coins  became,  the  scarcer  became  the  new  ones ;  for 
who  would  pay  two  ounces  of  silver  when  one  ounce  was 
legal  tender  ?  The  new  money  was  melted,  was  exported, 
was  hoarded,  but  circulate  it  would  not.  At  length  the 
lightest  pieces  began  to  be  refused  by  some  people,  and 
other  people  demanded  that  their  silver  should  be  paid  to 
them  by  weight  and  not  by  tale,  and  there  was  wrangling 
over  every  counter,  and  a  dispute  at  every  settlement,  and 
the  coin  was  really  so  diverse  in  its  value  that  there  was 
no  longer  any  measure  of  value  in  the  kingdom ;  business 
was  in  utmost  confusion,  society  was  by  the  ears,  poor 
people  were  unmercifully  fleeced,  and  shrewd  ones  grew 
enormously  rich ;  and  the  Jacobites  secretly  exulted  in  the 
hope  of  being  able  to  avail  themselves  of  the  prevailing- 
discontent  to  overthrow  the  scarcely  established  revolution- 
ary government  of  William  and  Mary ;  when,  by  the  joint- 
counsels  of  two  such  philosophers  as  Locke  and  Newton, 
and  two  such  statesmen  as  Somers  and  Montague,  the 
government  took  the  bold  resolution  of  recoining  all  the 
silver  of  the  kingdom.  An  early  day  was  fixed  by  Parlia- 
ment after  which  no  clipped  money  could  pass  except  in 
payments  to  Government,  and  a  later  day  after  which  it 
could  not  pass  at  all. 

(c)  Gresham's  Law  has  had  beautiful  illustrations  in  the 
monetary  history  of  the  United  States.  We  have  already 
seen  the  reason  why  the  first  silver  dollars  of  1794  could 


424  PRINCIPLES   OF   POLITICAL   ECONOMY. 

not  compete  in  currency  with  the  gold  coins  of  1795,  — 
the  silver  was  under-valued  in  the  legal  ratio  1  : 15,  —  it 
would  have  been  much  nearer  the  European  market  at 
1 : 15.5.  There  was  another  reason  operative  in  the  same 
direction  from  the  beginning,  which  did  not,  however,  come 
to  the  notice  of  the  Government  till  ten  years  later.  Only 
321  silver  dollar-pieces  were  coined  in  the  year  1805 ;  and 
May  1, 1806,  there  stands  an  order  from  President  Jefferson 
to  the  Director  of  the  Mint,  — "  that  all  the  silver  to  be 
coined  at  the  Mint  shall  be  of  small  denominations,  so  that 
the  value  of  the  largest  pieces  shall  not  exceed  half  a  dollar" 
The  presidential  reason  given  for  this  order  is,  —  "  that  con- 
siderable purchases  have  been  made  of  dollars  coined  at  the 
Mint  for  the  purpose  of  exporting  them,  and  that  it  is  probable 
that  further  purchases  and  exportation^  will  be  made"  The 
coinage  of  silver  dollars  thus  suspended  was  not  resumed 
for  30  years.  What  was  the  matter  with  these  dollars  ? 
Nothing,  only  they  were  too  valuable.  Hamilton  had 
adopted  for  his  new  dollar  the  exact  weight  in  fine  silver 
of  the  normal  Spanish-Mexican  dollar,  then  and  for  a  long 
time  the  unit  of  the  thriving  West  India  commerce  ;  clipped 
and  worn  coins  of  this  popular  stamp  had  slipped  into  cir- 
culation in  large  numbers  throughout  the  United  States, 
and  driven  out  the  new  and  good  pieces  in  accordance  with 
a  principle  much  better  understood  now  than  then ;  the 
President's  order  itself  was  not  very  intelligent,  inasmuch 
as  two  halves,  four  quarters,  or  ten  dimes,  were  then  equal 
in  weight  and  purity  with  the  dollar-pieces,  and  as  a  matter 
of  fact  were  almost  (if  not  quite)  equally  driven  out  by 
the  smaller  Spanish-Mexican  coins.  The  "  f our-pences  " 
and  "  nine-pen  ces"  ("York  shilling")  of  that  coinage  were 
almost  exclusively  the  small  change  of  New  York  and 
New  England  during  the  first  half  of  this  century.  The 
"  dimes  "  and  "  half-dimes  "  of  our  own  mintage,  though 


MONEY.  425 

long  legalized,  were  but  slowly  naturalized.  The  coin- 
changes  of  1853,  already  described,  gave  a  fair  chance  for 
the  first  time  to  our  smaller  silver  coins. 

The  last  native  illustration  of  Gresham's  Law  will  force 
us  to  anticipate  here  the  discussion  under  the  next  numeri- 
cal heading,  so  far  as  to  assume  that  there  is  such  a  thing 
as  paper  money,  and  that  the  Law  now  in .  hand  works  in 
connection  with  that  as  well  as  with  diverse  forms  of 
metallic  money.  In  1862,  Treasury  notes,  commonly  called 
Greenbacks,  made  a  legal  tender  for  debts  though  not  bear- 
ing interest,  were  issued  by  the  national  Government  to 
the  amount  of  $450,000,000.  Of  course,  under  these  cir- 
cumstances they  depreciated  in  value  as  compared  with  the 
gold  dollars,  which  gold  dollars  they  were  unfulfilled  prom- 
ises to  pay.  Just  so  soon  as  the  greenback  dollars  fell  fairly 
below  the  gold  dollars  in  value,  the  latter  left  the  channels 
of  trade  in  a  very  few  days'  time.  Down  sank  the  green- 
backs gradually  below  the  subsidiary  silver  coins  in  value, 
and  the  latter  obediently  and  utterly  abandoned  the  com- 
mercial field.  At  last  the  greenbacks  went  down  even 
below  the  level  of  the  copper  cents,  which  at  that  time  cost 
the  government  about  half  a  cent  each,  and  this  invariable 
law  of  money  swept  the  circulation  bare  of  coppers,  and 
the  people  had  to  resort  for  their  smallest  change  to  postage- 
stamps  and  shin-plasters  and  other  abominations.  Happily, 
the  country  survived  to  see  these  processes  exactly  reversed, 
and  the  old  law  confirmed  on  its  other  side.  When,  after 
a  considerable  interval,  the  paper  dollar  appreciated  to  the 
proper  height,  it  was  interesting  to  watch  the  copper  cents 
put  in  a  prompt  re-appearance ;  after  a  still  larger  appre- 
ciation of  the  paper,  back  came  in  abundance  the  subsidiary 
silver ;  and  as  the  day  of  the  redemption  of  the  paper  drew 
near,  silver  dollars  and  gold  dollars  greeted  smilingly  their 
old  acquaintances  of  the  street. 


426  PRINCIPLES   OF   POLITICAL  ECONOMY. 

13.  So  far  we  have  treated  only  of  Coin-Money  in  its 
two  forms,  substantive  and  subsidiary.  The  latter  may  now 
be  dismissed  as  of  little  consequence  in  itself,  and  as 
already  elucidated  fully :  the  latter  is  the  only  Money  that 
stands  in  its  own  right  as  a  commodity,  and  the  only  Money 
that  can  give  birth  to  the  Denominations  of  Value,  such  as 
sovereigns,  dollars,  marks,  and  francs.  What  is  a  Dollar? 
A  dollar  is  25|  grains  of  a  metal  compound  coined,  of 
which  nine  parts  are  pure  gold  and  one  part  a  hardening 
alloy.  It  is  a  definite  quantity  of  a  thing  definitely  and 
legally  described.  It  is  a  visible  and  tangible  and  well- 
known  commodity.  Government  is  competent,  if  it  pleases, 
to  alter  the  quantity  of  gold  that  shall  constitute  a  dollar, 
although  the  People  will  quickly  and  roughly  readjust  the 
prices  of  Services  to  a  changed  measure  of  them;  it  is 
competent  even  to  make  a  dollar  out  of  silver,  as  our  Gov- 
ernment has  tried  to  do  (for  the  most  part  vainly)  for  a 
century,  though  it  is  not  competent  to  cause  both  dollars 
to  circulate  as  such  at  the  same  time;  but  civilized  and 
advanced  Governments  are  not  practically  competent  to 
make  a  Dollar  out  of  anything  else  than  gold  and  silver. 

Money  is  a  current  and  legal  Measure  of  Services ;  for 
the  end  and  in  the  way  in  which  Money  alone  originates 
and  becomes  current  its  material  must  be  a  valuable  com- 
modity ;  and  after  centuries  of  experiments  and  exclusions 
no  civilized  People  now  tolerate  any  other  commodity  in 
this  relation  than  gold  or  silver.  Such  a  selected  com- 
modity becoming  in  the  manner  already  explained  an 
actual  medium  passing  from  hand  to  hand  in  Exchanges, 
impresses  its  name  on  the  minds  of  men  as  an  ideal  7neasure 
of  services,  which  measure  they  can  use,  and  do  constantly 
use,  without  handling  at  the  time  the  commodity  itself. 
But  these  ideal-dollars,  these  denomination-dollars,  need  to 
be  kept  in  check  by  a  constant  recurrence  to  actual,  pal- 


MONEY.  427 

pable  thing-dollars.  The  denomination  only  comes  into 
existence  in  connection  with  the  use  of  the  thing,  cannot 
possibly  exist  independently  of  it,  and  needs  constantly  to 
be  reduced  to  it  (as  it  were  by  actual  contact)  in  order  to 
be  useful  as  a  measure.  Just  as  men  talk  about  inches, 
and  calculate  by  inches,  in  thousands  of  cases  in  which  no 
actual  inch  is  used  as  a  measure,  and  in  every  case  of 
doubt,  dispute,  or  difficulty  have  recourse  to  the  actual 
inch,  and  thus  the  ideal  inch  is  kept  steady  in  the  minds 
of  men  by  frequent  reference  to  the  outward  standard ;  so 
the  mental  measure  of  services,  which  men  insensibly 
acquire  from  the  use  of  the  objective  measure,  needs  to  be 
kept  true  by  actual  and  frequent  contact  with  that  measure. 

But  besides  this  Thing-Dollar  and  its  Denomination, 
which  always  go  together  like  a  man  and  his  shadow,  there 
is  one  other  kind  of  Money,  namely,  the  Promise-Dollar. 
We  must  now  attend  to  this.  What  is  a  Dollar-Bill? 
How  does  it  read?  It  is  always  a  Promise  of  some  Issuer 
to  pay  to  bearer  One  Dollar,  that  is  to  say,  this  legal  and 
definite  quantity  of  a  precious  metal.  There  is  no  mystery 
here.  There  can  be  none.  A  Dollar  is  a  tangible  and 
weighable  commodity.  A  Dollar-Bill  is  a  Promise  to 
render  this  commodity  to  bearer  on  demand.  The  differ- 
ence is  the  same  in  kind  as  that  between  a  bushel  of  corn 
and  a  man's  promise  to  his  poor  neighbor  to  give  him  a 
bushel  if  he  will  come  for  it.  It  depends  on  the  man,  on 
his  ability  and  character,  how  much  the  corn-promise  is 
worth  ;  and  so  it  depends  on  the  issuer,  on  his  ability  and 
character,  how  much  the  coin-promise  is  worth.  The  Issuer 
may  be  of  such  standing  as  to  be  able  to  secure  for  his 
promises  that  they  become  "  a  current  and  legal  measure 
of  Services";  and  if  so,  they  become  Money  under  the 
definition. 

There  is,  then,  such  a   thing  as  Paper-Money,  though 


428  PRINCIPLES    OF   POLITICAL   ECONOMY. 

many  high  authorities  are  reluctant  to  concede,  that  any 
mere  promises  can  be  money  at  all.  For  ourselves  we 
cannot  refuse  the  courtesy  of  the  term  "  money  "  to  paper- 
promises-to-pay-coin,  which  our  Country  makes  a  legal 
tender  for  all  debts,  public  and  private.  The  making 
them  legal  tender,  however,  does  not  alter  their  nature 
one  particle.  They  are  still  promises, — and  nothing  more. 
Their  Value  depends  in  all  cases  upon  the  character  and 
resources  of  the  Issuer ;  their  Currency  may  be  quickened 
(at  some  rate  of  value)  by  their  being  made  a  legal  tender. 
Nothing  can  by  any  possibility  become  a  Money  unless  it 
first  be  a  Valuable.  The  essential  characteristic  of  Money 
is  its  possession  of  a  generalized  purchasing-power.  The 
Value  of  a  promise  depends  on  one  set  of  causes,  with 
which  we  are  now  very  familiar,  —  the  same  causes  on 
which  the  value  of  everything  depends ;  the  Generalization 
of  any  purchasing-power  into  money  depends  upon  another 
set  of  causes,  of  which  the  action  of  a  Government  in 
legislation  may  be  one. 

Paper-Money,  as  now  defined,  may  be  issued  by  Banks 
with  or  without  an  indirect  government  sanction,  or 
through  the  direct  action  of  Government.  The  Bank  of 
England  has  been  issuing  since  1694  paper-money  under 
a  series  of  Charters  granted  by  the  Government,  which 
becomes  thereby  in  a  manner  responsible  to  the  bearers 
for  the  redemption,  that  is,  the  fulfilment,  of  the  direct 
promises  of  "  The  Governor  and  Company  of  the  Bank  of 
England  " ;  since  1863  the  so-called  National  Banks  of  the 
United  States  have  issued  promises-to-pay,  designed  to 
circulate  as  money,  under  the  direct  authority  and  quasi- 
endorsement  of  the  national  Government;  and  since  1862 
that  Government  has  been  putting  out  directly  its  own 
promises  commonly  called  "  greenbacks."  These  last  have 
rested  and  now  rest  for  their  value  solely  on  the  good  faith 


MONEY.  429 

of  the  People  as  between  themselves.  By  a  separate  and 
additional  act  of  legislation,  which  it  is  mischievous  as 
well  as  unscientific  to  confound  with  the  original  promise- 
legislation,  this  particular  paper-money  was  and  is  legal 
tender  for  debts,  which  collateral  circumstance  whether 
wise  or  unwise  neither  changes  the  nature  nor  lessens  the 
obligation  of  the  original  promise  to  pay  coin.  No  so-called 
Decision  of  the  Supreme  Court  can  abolish  or  abridge  a 
natural  and  scientific  distinction.  Money  is  at  bottom  of 
two  kinds  only:  the  first  kind  is  an  intermediate  and 
equivalent  merchandise,  COIN  ;  and  the  second  kind  is 
Promises  to  pay  this  to  a  bearer  on  demand,  PAPER 
MONEY. 

The  only  way  to  make  any  promise  respectable  is  to 
fulfil  it  in  due  time.  The  only  way  to  make  Paper  Money 
a  decency  is  to  hold  sacred  in  action  the  promise  that 
distends  it.  The  United  States  undertook  in  1862  and 
onwards  to  make  its  own  plain  promises  respectable  by  a 
different  method,  namely,  by  legally  asserting  in  substance 
that  the  promise  is  its  own  fulfilment,  and  needs  no  other ; 
and  in  this  persistent  undertaking  encountered  a  miserable 
failure  throughout ;  because  the  People  also  persisted  in 
estimating  the  promise  solely  in  the  light  of  the  prospect 
of  its  literal  fulfilment.  The  greenbacks  at  one  time  lost 
two-thirds  of  their  normal  value  under  the  working  of 
such  estimation.  This  question  of  the  relation  of  two 
kinds  of  Money  to  each  other  is  a  question  of  Economics, 
and  not  of.  Constitutional  Law ;  or  rather,  it  is  a  question 
of  common  sense  and  common  honesty,  and  the  judgment 
upon  it  of  nine  men  learned  in  the  Law  is  no  whit  better 
than  the  judgment  of  nine  other  intelligent  men. 

As  Money  is  analyzable  into  two  varieties  only,  Coin 
and  Paper,  so  Paper  Money  falls  into  two  classes,  Con- 
vertible and  Inconvertible.  A  convertible  paper  money 


430  PRINCIPLES   OF  POLITICAL   ECONOMY. 

consists  of  promises  that  are  always  kept  by  the  issuer 
according  to  their  terms,  that  is  to  say,  that  are  paid  in 
specie  at  the  will  of  the  holder.  An  inconvertible  paper 
money  is  only  another  name  for  unfulfilled  promises.  Is 
it  any  wonder  that  unfulfilled  promises  to  pay  invariably 
become  less  valuable  than  that  which  they  promise  to  pay  ? 
They  are  valuable  to  start  with,  else  they  could  not  be- 
come money,  and  they  are  valuable  because  men  suppose 
the  promise  will  be  kept :  they  are  commonly  valueless  to 
end  with,  because  men  lose  faith  in  the  fulfilment  of  a 
promise  long  delayed.  This  is  the  simple  secret  of  the 
depreciation  of  inconvertible  money  so  soon  as  the  amount 
of  it  passes  a  certain  limit,  and  so  soon  as  a  certain  time 
has  elapsed  after  its  issue  and  the  issuer  shows  no  signs  of 
keeping  his  word.  As  money  is  only  a  measure  of  Ser- 
vices, and  as  possible  Services  are  limited  at  any  one  time 
and  place,  and  consequently  as  the  amount  of  money 
needed  for  healthful  business  is  limited  also,  a  steadily 
convertible  paper  money,  provided  the  limit  of  quantity 
be  not  overpassed,  will  constitute  a  tolerable  money.  But 
this  limit  of  quantity  is  apt  to  be  overpassed,  whether  the 
paper  money  be  convertible  or  inconvertible,  and  especially 
in  the  latter  case,  because  the  temptation  to  issue  promises 
to  pay  in  excess  of  the  means  of  promptly  redeeming  them 
always  besets  the  issuer  on  account  of  the  gain  to  him  in 
such  issue  at  least  for  a  time.  This  temptation  has  been 
yielded  to  first  or  last  by  every  nation,  and  probably  by 
every  corporation,  that  has  ever  issued  paper  money.  The 
Bank  of  England  has  been  on  the  whole  the  best  managed 
Bank  of  Issue  in  the  world,  and  its  Bills  (Promises)  have 
gained  the  most  confidence  and  the  widest  circulation. 
This  is  because  they  have  been  kept  by  the  Issuers  con- 
vertible from  the  beginning,  with  the  exception  of  two 
comparatively  brief  intervals  of  time.  As  already  related 


MONEY.  431 

under  the  last  general  proposition,  the  silver  coins  of  the 
realm  were  much  worn  and  clipped  when  the  Bank  was 
established  in  1694,  the  Bank,  however,  had  received  them 
on  deposit  of  customers  at  their  full  nominal  value ;  but 
after  the  Recoinage  began  in  1696,  it  was  obliged  under 
the  law  to  redeem  its  Bills  in  new  coin  of  full  weight,  that 
is,  for  perhaps  9  ounces  of  silver  received,  it  was  now 
bound  to  pay  12.  Consequently  its  enemies,  the  Jacob- 
ites, made  a  "  run  "  upon  the  Bank  by  collecting  up  its 
Bills  to  a  large  amount  and  presenting  them  for  payment. 
The  Bank  was  obliged  to  suspend  payment,  at  first  par- 
tially, and  then  generally.  In  February,  1697,  the  Bills 
were  24%  below  par.  The  Promises  could  not  be  kept, 
and  therefore  they  drooped  in  value  according  to  man's 
estimation  of  the  probability  of  their  becoming  again  con- 
vertible, which  happened  in  the  course  of  that  year  under  a 
new  charter  and  privileges  from  Government  to  the  Bank. 
Just  100  years  after  the  first  suspension  of  specie  pay- 
ments, in  1797,  when  the  War  of  the  French  Revolution 
made  such  demands  upon  the  English  for  money,  the  Bank 
broke  its  solemn  promises  the  second  time,  and  did  not 
formally  resume  payments  until  1821.  Government  and 
the  business  men  of  London  did  their  best  to  hold  up  the 
credit  of  the  notes  during  the  suspension,  but  they  were  not 
made  a  legal  tender  for  debts.  Government  received  them 
at  par  for  taxes,  and  provided  that  business  payments  in 
notes  would  be  held  as  payments  in  cash  if  offered  and 
accepted  as  such.  Debtors,  having  tendered  bank  notes, 
which  the  creditor  refused,  had  certain  privileges  before 
the  law  which  other  debtors  had  not.  The  notes  therefore 
had  a  quasi  legalization,  but  not  a  forced  circulation.  The 
bank  was  also  authorized  at  this  time  to  issue  <£5,  <£2,  and 
XI  notes.  Cautiously  issued  at  first,  bank  paper  continued 
at  par  for  several  years  after  the  suspension,  which  proves 


432  PRINCIPLES    OF   POLITICAL   ECONOMY. 

that  when  government  possesses  the  monopoly  of  issuing 
paper  money,  and  carefully  limits  its  quantity,  and  both 
receives  and  pays  it  out  at  par,  it  may  keep  an  inconvert- 
ible paper  at  par,  or  even  by  sufficiently  limiting  its  quan- 
tity carry  it  above  par.  But  this  truth  does  not  make  an 
inconvertible  paper  a  good  money,  because  it  does  not 
make  it  a  self-regulating  money,  and  because  government 
is  not  wise  and  firm  enough  to  fix  and  maintain  a  proper 
limit.  Though  Parliament  intended  in  successive  acts  to 
confirm  to  the  Bank  of  England  the  monopoly  of  banking 
by  enacting  that  no  partnership  of  more  than  six  persons 
should  take  up  money  on  its  own  bills,  yet  the  common  law 
assured  to  private  persons  and  smaller  partnerships  the 
right  to  do  this ;  and  private  bankers  multiplied  after  the 
suspension,  since  they  were  allowed  to  pay  their  notes  in 
Bank  of  England  notes.  Thus  the  quantity  of  paper  money 
gradually  increased  till  in  August,  1813,  the  Bank  of  Eng- 
land notes  were  at  30%  discount  in  gold. 

The  United  States,  both  as  Colonies  and  as  a  Country, 
have  had  varied  and  instructive  experience  with  inconvert- 
ible paper  Money.  We  will  glance  at  two  or  three  speci- 
mens only.  The  first  issue  of  Treasury  Notes,  commonly 
called  Greenbacks,  given  by  Congress  the  quality  of  legal 
tender  for  all  debts,  public  and  private,  except  duties  on 
imports  and  interest  and  principal  of  the  national  bonds, 
was  made  in  April,  1862,  and  was  justified  in  Congress 
and  out  solely  as  a  war  measure.  An  aggregate  of  $450,- 
000,000  was  put  out  in  all,  of  which  $87,000,000  were 
afterwards  taken  in,  and  the  balance  was  still  circulating 
in  1890.  In  one  month  after  the  first  issue  of  $150,000,000, 
these  greenbacks  began  to  droop  in  value  as  compared  with 
gold ;  in  four  months,  when  the  second  batch  of  $150,000,- 
000  was  authorized,  their  depreciation  was  already  marked 
and  firm;  and  in  nine  months,  when  President  Lincoln 


MONEY.  433 

reluctantly  gave  his  approval  to  the  third  issue  of  the 
same  amount  in  order  to  pay  off  the  soldiers  and  sailors, 
he  uttered  a  solemn  protest  against  the  policy  of  thus  inflat- 
ing the  current  money,  which,  he  said,  "  has  already  become 
so  redundant  as  to  increase  prices  beyond  real  values,  thereby 
augmenting  the  cost  of  living  to  the  injury  of  labor,  and  the 
cost  of  supplies  to  the  injury  of  the  ivhole  country"  In 
March,  1863,  $50,000,000  of  paper  promises  for  fractions 
of  a  dollar  were  authorized,  redeemable  in  sums  of  not  less 
than  three  dollars  in  greenbacks,  and  receivable  for  all 
dues  to  the  United  States  less  than  five  dollars,  except  for 
duties  on  imports.  Subsidiary  silver  coins  have  since  taken 
the  place  of  these  fractionals.  In  July,  1863,  the  green- 
back dollar  had  lost  one-quarter  of  its  nominal  value ;  in 
July,  1864,  it  had  lost  almost  two-thirds  of  its  nominal 
value,  as  its  lowest  point  was  reached  in  that  month, 
namely,  35  cents  as  compared  with  the  gold  dollar;  in 
July,  1865,  it  had  risen  to  70  cents ;  in  July,  1866,  it  stood 
at  66  cents,  just  two-thirds  of  a  dollar  proper ;  and  from 
that  time  it  slowly  rose,  with  many  fluctuations,  till  New 
Year's,  1879,  when  it  became  legally  and  actually  redeem- 
able in  gold  and  silver.  Its  variations  for  the  sixteen 
years,  however,  cannot  be  counted  by  the  number  of  years, 
nor  even  by  the  number  of  days ;  for  they  were  numerous 
on  each  business  day,  and,  as  Comptroller  Knox  says,  "can 
only  be  numbered  by  tens  of  thousands."  What  a  Measure 
of  Services  that  was ! 

Between  1863  and  1879  the  Bills  of  the  new  national 
Banks  were  redeemable  in  the  greenbacks  only,  that  is  to 
say,  one  species  of  national  promises-to-pay  were  paid  on 
demand  by  another  species  of  similar  promises,  both  alike 
inconvertible  irito  coin ;  and,  as  a  natural  consequence,  the 
bank-bills  bobbed  up  and  down  in  value  in  servile  obedi- 
ence to  the  inconvertible  legal  tenders. 


434  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Massachusetts  Colony  was  the  first  constituent  of  the 
present  United  States  both  to  mint  silver,  and  to  issue 
irredeemable  promises  to  pay  it.  Under  the  false  impres- 
sion that  only  Money  made  inferior  to  Sterling  would 
stay  in  the  Colony,  Massachusetts  began  to  mint  in  1652 
silver  shillings  and  sixpences  and  threepences  purposely 
debased  in  weight  (including  seigniorage)  22%  below 
sterling.  The  silver  for  these  coins  came  in  mostly  from 
the  trade  with  the  West  Indies,  to  which  were  now  shipped 
peltry,  fish,  various  forms  of  lumber,  beef,  pork,  pease,  cat- 
tle, and  horses,  for  which  they  took  mainly  sugar,  molasses, 
rum,  and  silver.  "  They  would  have  brought  more  silver 
and  less  rum  and  other  merchandise,  had  the  first  been  in 
greater  request  at  home"  (Bronson.)  John  Hull,  the  mint- 
master  took  out  15  pence  out  of  every  £>  for  his  own  pay, 
and  grew  rich  by  the  process.  That  was  over  6%.  In 
1662,  a  twopenny  piece  was  added  to  the  series,  and  the 
mint  existed  (sometimes  idle)  for  over  30  years,  but  all 
the  pieces  coined  bore  the  dates  of  1652  or  1662.  This 
paucity  of  dates  is  commonly  and  perhaps  properly  ac- 
counted for  on  the  ground  that  coining  in  the  colony  was 
contrary  to  the  prerogative  of  the  Crown ;  but  it  is  to  be 
added  that  John  Hull  was  not  a  man  to  get  new  dies  so 
long  as  the  old  ones  would  answer  his  purpose.  The  law 
forbade  the  exportation  of  these  pieces  under  the  penalty 
of  thereby  forfeiting  one's  whole  visible  estate  ;  because, 
though  this  money  was  much  worse  than  sterling,  there 
was  a  worse  money  than  this  circulating  in  the  colony, 
and  Gresham's  law  began  to  crowd  it  from  the  first,  and  to 
some  extent  it  was  both  smuggled  out  and  clipped  down. 
But  it  furnished  a  sort  of  standard,  nevertheless,  and 
tended  to  keep  the  later  money  within  distant  sight  of  the 
silver,  and  became  the  reason  why  in  New  England  there 
were  six  shillings  to  the  dollar.  The  Spanish  pillar  dollar, 


MONEY.  435 

which  was  the  standard  in  the  West  Indies,  was  worth  4s.  6d. 
sterling;  and  in  1672  a  law  was  passed  in  Massachusetts 
allowing  these  dollars  to  circulate  at  6s.  provincial,  which 
was  a  discount  on  the  home  pieces  of  25%.  Ever  after 
there  were  six  shillings  in  a  dollar  in  New  England.  Hull's 
money  is  called  the  "  pine-tree  "  coinage,  and  was  the  only 
coin  money  minted  in  the  country  till  after  Independence. 
Also  in  1690  Massachusetts  set  the  first  example,  which 
was  imitated  20  years  later  by  the  other  New  England 
Colonies  and  by  New  York  and  New  Jersey,  of  issuing 
"  Bills  of  Credit "  to  meet  the  expenses  of  the  two  disas- 
trous Expeditions  against  the  French  in  Canada.  Those 
Bills  were  not  made  legal  tender  in  private  payments,  and 
pains  were  taken  to  keep  up  their  credit,  but  they  were 
depreciated  from  the  first,  and  came  to  be  very  much 
depreciated.  Massachusetts  and  Connecticut  made  their 
bills  receivable  for  taxes  at  a  premium  of  5%,  laid  special 
taxes  for  their  redemption,  and  from  time  to  time  called 
in  portions  of  the  issues.  In  1718  Connecticut  enacted 
that  a  debtor  tendering  these  bills  should  not  be  liable  to 
legal  execution  on  his  estate  or  person  for  the  payment  of 
that  debt,  an  expedient,  as  we  have  seen,  resorted  to  by 
England  in  the  great  Bank  restriction  of  1797-1821. 
These  early  New  England  bills  bore  no  interest,  were  not 
loaned  out  by  the  colony,  and  were  a  convenient  though 
dangerous  means  of  anticipating  the  income  of  future 
taxes ;  but  after  1712  a  paper  money  scheme  originating  in 
South  Carolina  came  into  favor  in  the  colonies,  which  was, 
to  open  loan-offices  for  the  issue  of  colony  bills  on  the 
mortgage  of  land,  the  interest  on  which  helped  to  pay  the 
colony  expenses,  the  principal  of  which  at  first,  and  on 
being  paid  back  and  re-loaned,  furnished  a  capital  to  bor- 
rowers, while  the  bills  themselves  furnished  a  money  for 
the  people.  Pennsylvania  had  the  best  luck  with  this 


436  PRINCIPLES   OF   POLITICAL   ECONOMY. 

scheme  of  all  the  colonies  which  tried  it:  as  early  as  1729 
Benjamin  Franklin  became  thoroughly  possessed  of  John 
Law's  notion,  that  paper  money  may  be  "  based  "  on  land 
or  other  valuables,  saying  in  a  pamphlet  of  that  year  that 
"  bills  issued  upon  land  are  in  effect  coined  land ":  Penn- 
sylvania bills  nevertheless  were  at  46%  discount  in  1748. 
Some  of  the  later  colony  bills  bore  interest,  some  were  of  a 
"  new-tenor,"  so-called,  designed  to  take  up  the  old  ones, — 
Virginia  in  1755  made  hers  a  legal  tender  for  debts,  —  some 
were  issued  in  bounties  for  Indian  scalps  and  for  various 
manufactures  and  fisheries,  but  all  ran  one  road  of  depre- 
ciation and  gave  birth  to  one  set  of  results.  Connecticut 
managed  her  issues  the  best  of  the  colonies,  and  yet 
Bronson  says  of  the  state  of  things  in  that  colony  in  1749, 
"  Trade  was  embarrassed  and  the  utmost  confusion  prevailed  : 
no  safe  estimate  could  be  made  as  to  the  future,  and  credit 
was  almost  at  an  end :  no  man  could  safely  enter  into  a  con- 
tract which  was  to  be  discharged  in  money  at  a  subsequent 
date :  prudence  and  sagacity  in  the  management  of  business 
were  without  their  customary  reward." 

John  Law,  a  shrewd  ^Scotchman,  born  in  Edinburgh  in 
1671,  son  of  a  goldsmith,  with  an  innate  talent  for  finance 
and  well  educated,  was  the  first  to  give  scientific  form  and 
color  to  the  false  theory  that  paper  money  represents  com- 
modities of  some  sort,  and  may  be  issued  to  an  amount 
equal  to  the  value  of  these.  "  Any  goods  that  have  the 
qualities  necessary  in  money  may  be  made  money  equal  to 
their  value.  Five  ounces  of  gold  is  equal  in  value  to  <£20, 
and  may  be  made  money  to  that  value  ;  an  acre  of  land  is 
equal  to  £20,  and  may  be  made  money  equal  to  that  value, 
for  it  has  all  the  qualities  necessary  in  money."  The  fal- 
lacy in  these  words  of  Law  is  patent  enough  to  any  one 
who  will  stop  to  think  a  moment  about  the  nature  of 
Money.  Because  land,  for  example,  has  value,  it  does  not 


MONEY.  437 

follow  that  it  has  "  all  the  qualities  necessary  in  money  "  ; 
and,  as  a  matter  of  fact,  it  lacks  the  precise  quality  neces- 
sary in  money,  because,  though  it  has  purchasing-power,  it 
cannot  from  its  very  form  and  nature  become  a  generalized 
and  current  purchasing-power.  Money  is  indeed  a  valu- 
able thing,  but  that  does  not  prove  that  all  valuable  things 
can  be  money.  With  this  radical  vice  of  Law's  view  was 
wrapped  up  another,  namely,  that  there  may  be  in  any 
country  as  much  paper  money  as  the  sum  of  the  values  of 
all  its  valuable  things.  Now,  we  have  learned  perfectly, 
what  escaped  the  acute  intellect  of  John  Law,  that  Money 
is  only  a  valuable  measure  of  all  other  salable  Services  ; 
and  therefore,  that  the  amount  of  it  that  can  be  made  use- 
ful at  any  one  time  and  place  is  strictly  limited,  and  bears 
very  little  relation  to  the  sum  of  the  values  present  at  that 
time  and  place. 

Scotland  fought  shy  of  Law's  idea  when  he  published  it 
there  in  1705,  and  so  did  Paris  the  first  time  he  visited 
that  city,  in  which  and  in  other  cities  he  gambled  success- 
fully and  talked  finance  to  princes  and  statesmen  fascin- 
atingly; but  when  he  returned  to  Paris  in  1715  with  his 
ill-gotten  fortune,  he  gained  the  ear  of  the  Regent  Duke 
of  Orleans,  who  permitted  him  to  found  a  bank  there,  in 
which  were  incorporated  some  sound  principles  of  mone- 
tary science  as  well  as  the  prime  fallacy  of  his  system. 
The  bank  bought  a  portion  of  the  State  Debt,  just  as  the 
Bank  of  England  had  done,  and  laid  in  also  a  fair  stock  of 
coin,  and  thereupon  issued  a  paper  money.  For  a  couple 
of  years,  or  so,  the  bank  surpassed  all  hopes,  for  Law  had 
touched  a  spring  till  then  but  little  known  in  France,  the 
potent  spring  of  Credit.  But  his  whole  thought,  meditated 
on  for  years,  could  not  be  expressed  through  a  private 
bank.  The  State  should  be  a  banker ;  it  should  collect  all 
its  revenues  into  a  central  bank,  and  attract  the  money  of 


438  PRINCIPLES    OF   POLITICAL   ECONOMY. 

individuals  to  it  as  deposits  ;  besides,  the  State  has  public 
property  of  vast  value,  on  the  strength  of  which  paper 
money  can  be  emitted  and  made  legal  tender;  and  thus 
the  State,  instead  of  borrowing,  should  lend  to  all  on  easy 
terms  and  the  profits  thus  accruing  would  lessen  or  abol- 
ish taxes.  Nor  was  this  all.  The  State  should  also  be  a 
merchant;  the  whole  nation  should  form  a  commercial 
company,  a  body  of  traders,  whose  common  treasury  should 
be  the  State  bank.  Commerce  by  individuals  creates 
great  wealth ;  why  should  not  the  organized  commerce  of 
a  State  make  everybody  rich  ?  The  discounts  of  the  bank, 
and  the  profits  of  the  trade,  would  surely  provide  for  the 
public  service  without  taxation.  These  vast  ideas  were 
actually  carried  out.  Law's  bank  became  the  Royal  Bank, 
issuing  a  paper  money  guaranteed  by  the  State  and  resting 
back  upon  the  value  of  all  national  property.  The  money 
was  receivable  in  taxes,  nominally  redeemable  in  coin,  and 
made  a  legal  tender.  It  actually  bore  at  one  time  5  and 
10  %  premium  over  gold  and  silver.  People  were  anxious 
to  exchange  their  coin  for  notes.  Meanwhile  a  commer- 
cial company  was  formed  in  connection  with  the  bank,  to 
which  the  State  ceded  at  first  the  monopoly  of  the  com- 
merce of  Louisiana  and  of  the  Canada  beaver  trade  for 
twenty-five  years,  and  the  soil  of  Louisiana  forever ;  under 
the  auspices  of  which  NEW  ORLEANS  was  founded,  and 
named  from  the  Regent,  the  patron  of  the  grand  system ; 
and  in  succession,  the  monopoly  of  tobaccos,  the  rights  of 
the  Senegal  Company,  of  the  East  India  Company,  of  the 
China  Company,  and  of  the  Barbary  Company ;  until,  hav- 
ing almost  all  the  commerce  of  France  outside  of  Europe 
in  its  hands,  it  entitled  itself  the  COMPANY  OF  THE  INDIES. 
Its  shares  rose  from  a  par  value  of  500  francs  to  10,000 
francs,  more  than  forty  times  their  value  in  specie  at  their 
first  emission.  To  support  such  speculations,  which  com- 


MONEY.  439 

pletely  turned  the  heads  of  all  classes  of  the  people,  the 
amount  of  paper  money  reached  at  last  the  sum  of 
3,071,000,000  francs,  833,000,000  more  than  had  been 
legally  authorized  to  be  emitted.  The  collapse  of  this 
most  gigantic  bubble  of  history  was  terrific.  Before  the 
close  of  1720,  the  shares  of  the  Company  could  be  bought 
for  a  louis  d'or,  or  twenty  shillings  sterling,  and  the  paper 
money  of  course  became  worthless. 

The  ghost  of  John  Law  reappears  gibbering  and  chat- 
tering in  some  human  shape  once  in  a  generation  or  two 
in  all  civilized  countries.  In  March,  1890,  Senator  Stan- 
ford of  California,  himself  reputed  to  be  worth  $30,000,- 
000,  propounded  the  question  in  the  Senate  of  the  United 
States,  whether  it  were  not  advisable  for  the  Government 
to  issue  legal-tender  notes  on  the  basis  of  the  real  estate 
of  the  country.  His  interrogative  argumentation  implied, 
(1)  that  there  was  a  scarcity  of  Money  causing  great 
hardship  to  individuals  and  depression  to  business,  (2) 
that  if  national  bank  bills  are  properly  issued  on  govern- 
ment bonds  it  is  equally  proper  to  base  legal  tenders  on 
real  property,  (3)  that  there  is  no  natural  and  strict  limi- 
tation to  the  amount  of  Money  in  a  country  at  any  one 
time,  and  (4)  that  as  far  as  he  knows  there  may  well 
enough  be  as  much  money  in  amount  as  the  estimated 
value  of  the  real  estate.  All  this  is  John  Lawism  pure 
and  simple.  All  this  utterly  ignores  the  nature  of  Money 
as  a  valuable  measure  of  all  other  Services.  It  also  ignores 
the  truth,  that  an  advancing  country  needs  less  rather  than 
more  Money  in  amount  as  it  advances,  because  cheques 
and  other  forms  of  non-money  Credits  are  constantly 
increasing  both  absolutely  and  relatively.  It  is  because 
this  Senator's  monetary  notions  seemed  to  correspond  with 
those  of  a  majority  of  the  Senate,  that  it  is  perhaps  proper 
to  give  them  here  a  moment's  attention. 


440  PRINCIPLES  OF  POLITICAL  ECONOMY. 

These  supposed  legal-tender  notes  would  be  secured  by 
a  government  lien  on  land  and  buildings,  and  by  the  direct 
credit  of  the  Government  as  well ;  just  as  the  national 
bank  bills  are  secured  by  the  bonds  of  the  nation  held  in 
reserve  for  that  purpose,  and  also  by  the  direct  image  and 
superscription  of  Caesar  upon  every  bill.  People  holding 
mortgaged  real  estate  could  accept  a  non-interest  bearing 
government  lien  instead  of  a  6%  or  8%  private  mortgage, 
that  is,  could  pay  off  their  mortgages  with  the  legal  ten- 
ders given  them  by  the  Goverment,  the  latter  taking  the 
lien  or  new  mortgage  ;  and  people  owning  real  estate  clear 
could,  if  they  chose,  execute  a  perpetual  mortgage  to  the 
Government,  that  is,  give  up  the  fee  simple  to  their  lands, 
and  receive  legal-tender  notes  to  the  full  amount  in  return. 
This  would  at  least  relieve  the  "  scarcity "  of  Money ! 
The  volume  of  national  Money  at  that  moment  was  in 
round  numbers  11,400,000,000;  the  assessed  valuation  of 
the  real  property  of  the  country  was  at  the  same  moment 
at  least  115,000,000,000 ;  so  that,  on  this  scheme,  perhaps 
$10,000,000,000  of  additional  legal-tender  Money  could  be 
issued !  Here  is  paternalism  and  socialism  and  John  Law- 
ism  all  combined.  Here  is  a  Government  of  strictly  lim- 
ited and  carefully  enumerated  powers,  under  a  written 
Constitution  as  precise  as  language  can  make  it,  containing 
the  solemn  declaration  that  all  "  powers  not  delegated  to 
the  United  States  are  reserved  to  the  States  respectively 
or  to  the  People,"  owning  or  soon  to  own  not  only  the 
railroads  and  the  telegraphs  but  also  the  major  part  of  the 
lands  of  a  free  country,  and  going  into  the  mortgage  busi- 
ness on  the  heroic  scale ! 

If  this  honorable  Senator  and  his  like-minded  colleagues 
were  tolerably  familiar  with  the  financial  history  of  their 
country,  and  perhaps  they  were,  they  would  have  known 
that  this  precise  scheme  had  had  a  practical  trial  in  Rhode 


MONEY.  441 

Island,  just  before  the  adoption  of  the  national  Constitu- 
tion. The  Legislature  authorized  the  issue  of  $500,000  in 
scrip-money  based  upon  the  value  of  the  real  estate  of  the 
farmers  of  the  Colony.  The  law  required  a  mortgage 
for  twice  the  amount  of  scrip-money  based  upon  it,  and 
it  was  therefore  supposed  the  money  would  be  as  good  as 
gold  or  better.  But  somehow  or  other  the  merchants  of 
the  towns  could  not  see  the  matter  in  that  light.  The 
depreciation  of  the  scrip-money  began  at  once,  and  the 
prices  of  wares  ran  up  in  a  way  that  should  have  set  busi- 
ness in  active  motion,  according  to  all  the  views  of  the 
"  scarcity  "  school.  It  was  therefore  enacted  by  the  Legis- 
lature, that  anybody  who  refused  to  accept  the  scrip  at  its 
face  value  should  be  fined  $500  and  lose  the  right  of 
suffrage  !  They  made  it  a  legal  tender !  But  business 
refused  to  boom.  The  merchants  shut  up  their  stores,  the 
farmers  could  not  market  their  crops,  and  idleness  and 
rioting  set  in  all  over  the  State.  Then  the  farmers  organ- 
ized a  boycott  against  the  towns,  and  food  became  scarce. 
Meanwhile  the  mortgage  legal  tenders  would  not  pass  at 
the  best  for  over  16  cents  to  the  dollar !  There  was  more 
of  "  enforcing  "  legislation,  and  appeal  to  the  courts,  but 
nothing  could  boost  the  mortgage-money.  The  chief  result 
of  the  experiment  was,  that  Rhode  Island  gained  in  this 
way  the  title  of  "  Rogues'  Island." 

No  matter  how  good  the  cause,  how  patriotic  the  People, 
an  inconvertible  paper  money  is  sure  to  run  down  at  the 
heel.  In  June,  1775,  one  week  after  Bunker  Hill,  the 
Continental  Congress  voted  to  emit  12,000,000  in  "  Bills 
of  Credit "  issued  on  the  faith  of  the  "  Continent."  Eleven 
separate  Colonies,  New  Hampshire  and  Georgia  issuing 
none,  began  about  the  same  time  their  revolutionary  is- 
sues of  the  same  sort,  amounting  in  all  during  1775-83  to 
'$209,524,776.  The  vice  of  such  irredeemable  scrip  is, 


442  PRINCIPLES   OF   POLITICAL   ECONOMY. 

there  is  no  economical  limitation  of  the  Supply.  The 
middle  of  1777,  when  Burgoyne  was  prosperously  advanc- 
ing from  Canada  towards  New  York,  saw  a  general  fall  of 
the  notes  both  Continental  and  Colonial,  and  of  course  and 
in  consequence  a  universal  rise  of  the  prices  of  other  prod- 
ucts. At  the  close  of  that  year,  the  average  depreciation 
from  silver  was  not  far  from  3  to  1 ;  at  the  close  of  1778, 
it  was  not  far  from  6  to  1  ;  at  the  end  of  1779,  it  was 
about  28  to  1 ;  the  Continental  press  then  rested,  after 
$200,000,000  nominally  had  been  put  out,  but  actually 
about  $40,000,000  more  than  that,  a  usual  if  not  universal 
accompaniment  of  such  issues.  When  the  stuff  dropped 
out  altogether  in  the  spring  of  1781,  the  country  found  no 
more  lack  of  silver  for  Money  than  Massachusetts  had 
found  in  1749,  when  and  after  she  redeemed  her  outstand- 
ing bills  of  credit  at  11  for  1  in  sterling  silver,  .£138,649 
of  which,  the  share  falling  to  her  from  the  capture  of 
Louisburg,  was  shipped  to  the  Colony  in  coin,  and  she 
became  for  the  next  25  years  the  "  Silver  Colony."  As- 
suming that  only  $200,000,000  Continental  had  been  issued, 
Thomas  Jefferson  carefully  estimated  that  the  Nation 
realized  from  them  $36,367,720  in  specie  value,  or  18%  of 
the  nominal  value. 

14.  Whether  the  Money  of  any  Nation  be  coin  or  paper 
or  both,  when  once  it  is  in  the  hands  of  the  People,  Gov- 
ernment has  properly  nothing  to  say  about  the  rate  of 
interest  at  which  one  person  loans  this  money  to  another. 
Usury  Laws  so-called,  prohibiting  the  lender  from  taking 
more  than  a  prescribed  rate  %  for  the  use  of  money  loaned, 
under  penalties  sometimes  of  the  entire  interest  and  some- 
times of  the  entire  debt  have  disfigured  the  statute-books 
of  all  Nations  and  of  all  the  States  of  this  Union.  Such 
laws  cannot  justify  themselves  for  a  moment  in  the  light  of 
sound  principles  of  Political  Economy.  Their  origin  may 


MONEY.  443 

be  explained  by  a  reference  to  two  false  views,  now  happily 
exploded. 

(a)  The  laws  of  Moses  forbade  to  the  Israelites  the 
taking  from  one  another  any  interest  on  money  loaned,  but 
at  the  same  time  it  allowed  them  to  take  such  interest 
freely  of  strangers ;  the  permission  in  the  one  case  going 
to  show  that  there  is  nothing  in  the  taking  of  interest  that 
is  unjust  or  sinful,  and  the  prohibition  in  the  other  being 
readily  explainable  from  the  general  purpose  of  the 
municipal  regulations  of  Moses,  which  was  to  found  an 
agricultural  and  not  a  trading  commonwealth,  in  which 
every  family  was  to  possess  land  that  could  not  be  perma- 
nently alienated  or  sold,  in  which  it  was  a  great  object  to 
maintain  the  personal  independence  and  equality  of  these 
families,  in  which  the  law  for  the  recovery  of  debts  was 
very  summary  and  effective,  lessening  the  risk  of  losing 
the  principal,  and  which  was  to  be  and  was  sedulously 
separated  in  its  usages  from  the  surrounding  nations.  It 
has  been  well  understood  for  a  long  time  that  the  municipal 
code  of  Moses  was  local  and  peculiar,  not  necessarily  appli- 
cable at  all  to  the  circumstances  of  other  States,  and  in  no 
sense  binding  on  the  conscience  of  legislators ;  and  yet 
there  doubtless  sprang  from  the  prohibition  referred  to  a 
prejudice  against  interest,  and  this  prejudice  was  perhaps 
deepened  in  the  Middle  Ages  and  onwards  by  the  conduct 
of  the  Jews  themselves,  who,  in  addition  to  their  sin  of 
persistently  growing  rich  in  spite  of  the  endless  disabilities 
laid  on  them  by  the  people  of  Europe,  always  demanded, 
in  accordance  with  the  permission  of  their  great  lawgiver, 
a  good  rate  per  centum  of  interest  from  those  strangers  to 
whom  they  became  money-lenders.  The  Jews  were  every- 
where hated,  and  consequently  the  usury  which  they 
practised  was  hated  also.  The  fundamental  absurdity  of 
forbidding  in  trading  communities  the  taking  of  interest  on 


444  PRINCIPLES   OF   POLITICAL   ECONOMY. 

sums  loaned  to  a  borrower  which  he  was  at  liberty  to  use 
for  his  own  profit,  deterred  the  nations  from  going  to  the 
length  of  prohibition,  unless  it  might  be  in  the  case  of  the 
hated  Jews.  There  is  a  clause  of  Magna  Charta,  interesting 
as  showing  how  early  the  children  of  Abraham  became  the 
money-lenders  of  Europe,  to  the  effect  that,  during  the 
minority  of  any  baron,  while  his  lands  are  in  wardship,  no 
debt  which  he  owes  to  the  Jews  shall  bear  any  interest. 

(b)  Governments  formerly  deemed  themselves  competent 
to  determine  and  fix  the  general  purchasing-power  of  their 
own  money.  Even  the  Constitution  of  the  United  States 
uses  this  language :  "  to  coin  money,  regulate  the  value 
thereof,  and  of  foreign  coins.'"  There  was  formerly,  and 
there  is  still  to  some  extent,  a  curious  and  harmful  confu- 
sion in  the  public  mind  in  respect  to  this  term,  "  the  value  of 
money."  In  the  only  proper  sense  of  the  term  the  value 
of  money  means  its  power  of  purchasing  services  in  general, 
and  the  value  of  money  is  high  when  a  given  sum  of  it  will 
purchase  much  of  general  services,  and  low  in  the  contrary 
case  ;  and  a  high  or  low  value  of  money  in  this  true  sense 
depends  on  a  very  distinct  set  of  causes  from  those  which 
determine  the  high  or  low  rate  of  interest  on  money  loaned ; 
nevertheless,  so  long  as  governments  supposed  that  they 
could  regulate  the  former,  it  is  very  natural  that  they 
should  also  suppose  that  they  could  regulate  the  latter ;  and 
although  all  intelligent  governments  have  given  over  the 
idea  of  being  able  to  regulate  the  general  value  of  the 
money  they  furnish  to  the  people,  many  of  them  still  adhere 
to  the  notion,  equally  false  with  the  other,  that  they  are 
able  to  regulate  the  loanable  value,  or  the  rate  of  interest, 
at  least  to  prevent  any  more  than  their  prescribed  maxi- 
mum rate  from  being  taken.  A  few  simple  considerations 
will  sufficiently  condemn  all  usury  laws. 

(1)    It  is  at  once  needless  and  invidious  to  deny  by  law 


MONEY.  445 

to  money-lenders,  who  offer  just  as  honorable  and  useful 
services  to  society  as  any  other  class  of  men,  the  privilege 
of  selling  their  service  for  what  it  will  bring  in  the  market, 
while  other  men  in  every  department  of  business  are 
allowed  to  exchange  their  services  on  the  best  terms  they 
can  make  without  interference  or  control.  Let  us  see  pre- 
cisely the  nature  of  the  transaction  when  one  man  loans 
money  to  another.  It  is  a  clear  case  of  value.  The  lender 
does  a  service  to  the  borrower,  and  for  this  service  justly 
demands  a  compensation.  The  service  is  this  :  The  lender 
might  himself  use  the  money  to  gratify  his  own  desires.  It 
is  his  money ;  he  may  use  it,  as  he  pleases,  for  his  own 
gratification.  Or  he  may  himself  employ  it  productively, 
and,  at  the  end  of  the  period,  receive  back  his  principal 
Avith  the  customary  rate  of  profit.  If  he  surrenders  this 
advantage  to  the  borrower,  if  he  passes  over  to  him  the 
right  to  use  this  money,  say,  for  a  year,  he  practises  what 
we  call  in  Political  Economy  abstinence.  For  this  absti- 
nence he  has  a  right  to  claim  a  reward,  precisely  as  the 
man  has  a  right  to  claim  a  reward  who  foregoes  working 
for  himself  in  order  to  work  for  another.  '  This  reward 
of  abstinence  is  interest.  The  money-lender  foregoes  an 
advantage.  He  performs  a  service  for  the  borrower ;  and, 
therefore,  the  right  to  interest  stands  on  just  as  unassailable 
ground  as  the  right  to  wages.  Moreover,  the  loanable 
value  of  money  varies  under  Supply  and  Demand  just  like 
other  values ;  there  are  always  those  who  want  to  borrow, 
and  always  those  who  want  to  lend ;  both  parties  must  be 
assumed  to  know  their  own  minds,  and  to  be  equally  com- 
petent to  make  their  own  bargains ;  it  is  a  case  of  mutual 
exchange  for  a  mutual  benefit,  like  all  other  trade ;  and 
the  current  rate  of  interest  is  determined  at  any  one 
time  by  the  actual  tree  exchanges  between  borrowers  and 
lenders.  Now  for  any  government  to  try  to  compel  a  lender 


446  PRINCIPLES   OF   POLITICAL  ECONOMY. 

by  law  to  take  only  6%  when  his  money  is  worth  8,  is  a 
direct  violation  of  the  rights  of  property.  It  is  a  forcible 
and  pernicious  interference  with  the  freedom  of  contracts. 
It  is  based  on  the  false  premise  that  the  loanable  value  of 
money  is  uniform,  and  that  government  is  competent  to 
determine  what  it  is.  No  value  is  uniform.  And  no  gov- 
ernment is  competent  to  determine  even  the  maximum 
price  of  money  loaned,  any  more  than  the  maximum  price 
of  commodities. 

(2)  Usury  laws  are  almost  uniformly  disregarded,  both 
by  the  governments  which  make  them  and  by  the  people 
for  whom  they  are  made.  Indeed,  such  laws  cannot  be 
enforced  in  a  commercial  community.  Common  sense  is 
outraged  by  a  law  which  requires  a  man  to  part  with  his 
property  at  less  than  the  actual  value ;  and  when  common 
sense  is  against  a  law,  it  stands  a  slim  chance  of  observance. 
If  the  legal  rate  be  six,  and  the  actual  worth  be  eight,  who 
lends  at  six?  Not  the  banks.  They  require  deposits  of 
their  customers,  the  use  of  whose  money  shall  make  up  to 
them  the  difference  between  the  legal  and  the  actual  rate. 
The  modes  of  evasion  are  various,  but  they  are  adequate 
and  universal.  Besides,  governments  themselves  have 
shown  a  noteworthy  inconsistency  in  this  matter,  which 
incidentally  proves  the  unsoundness  of  their  whole  action. 
While  announcing  pains  and  penalties  to  those  who  take 
more  than  a  given  rate,  they  are  careful  never  to  bind 
themselves  down  to  any  given  rate.  Governments  are 
always  more  or  less  borrowers,  and  if  usury  laws  are  neces- 
sary in  order  to  help  borrowers  in  a  pinch,  there  ought  to 
be  a  clause  in  the  organic  law  of  every  country,  forbidding 
the  government  to  pay  and  its  lenders  to  take  any  more 
than  a  certain  rate  per  cent.  There  is  no  such  clause  in 
any  organic  law.  Governments  wisely  follow  the  natural 
market,  and  borrow  low  when  they  can,  and  pay  high  when 


MONEY.  447 

they  must.  In  the  last  months  of  Mr.  Buchanan's  adminis- 
tration, the  United  States  paid  12%  on  a  public  loan,  and 
could  get  but  little  at  that.  Sauce  for  the  goose  is  sauce 
for  the  gander,  and  if  usury  laws  are  good  for  the  citizens, 
some  solid  reason  ought  to  be  rendered  why  they  are  not 
good  for  the  government.  The  truth  is,  they  are  not  good 
for  either,  since  natural  laws  are  perfectly  competent  to 
regulate  the  rate  of  interest,  and  do  regulate  it  substan- 
tially in  spite  of  a  factitious,  impertinent,  and  mischief- 
making  interference. 

(3)  If  Usury  laws  were  not  disregarded,  they  would  be 
even  worse  in  their  effects  than  they  are  now.  We  must 
suppose  that  their  aim  is  to  aid  borrowers,  and  make  it 
easier  for  them  to  contract  loans.  But  are  borrowers,  as  a 
class,  any  more  deserving  of  the  fostering  care  of  govern- 
ment than  are  lenders  ?  Even  if  it  could  make  its  inter- 
ference effective,  as  it  cannot,  is  there  any  reason  why 
government,  leaving  these  borrowers  to  make  all  other 
bargains,  sales,  and  transfers  according  to  their  best  skill 
and  judgment,  should  rush  to  their  rescue  only  when  they 
propose  to  borrow  money  ?  If  they  are  competent  to  do 
their  other  business  for  themselves,  government  pays  their 
capacity  a  poor  compliment  in  undertaking  to  help  them  in 
the  single  matter  of  making  loans ;  and  the  borrowers  in 
turn  have  reason  to  pray  to  be  delivered  from  their  friends, 
since  they,  of  all  others,  would  be  the  men  especially 
injured  if  all  the  lenders  obeyed  the  usury  laws.  Suppose 
that  a  borrower  is  in  great  need  of  a  loan,  and  that  for 
some  reason  his  credit  is  now  a  little  weak.  Many  men 
would  be  willing  to  loan  him  at  9%,  which  affords  a  margin 
for  the  extra  risk,  but  at  6,  which  we  will  suppose  the  max- 
imum allowed  by  the  law,  he  cannot  borrow  a  dollar,  be- 
cause his  credit  is  not  quite  equal  to  the  best.  If,  there- 
fore, the  lenders  obey  the  law,  he,  and  such  as  he,  must 


448  PKINCIPLES   OF   POLITICAL   ECONOMY. 

fail.  And  because  it  is  unlawful  to  take  over  6%  he  will 
be  obliged  to  pay  those  who  are  willing  to  violate  the  law 
10  or  12,  to  compensate  them  for  the  risk  and  odium  of 
such  violation,  while,  under  freedom,  he  could  borrow  at  8. 
Moreover,  if  the  loanable  value  of  money  at  the  time  be 
actually  9,  while  the  law  only  allows  6,  many  men  will 
attempt  to  use  their  own  capital  productively,  who  would 
otherwise  loan  it,  in  order  to  realize  the  high  rate ;  and 
this  action  of  theirs  still  further  restricts  the  loan-market 
and  makes  it  more  difficult  to  borrow.  If,  then,  the  pur- 
pose of  government  be  to  aid  borrowers,  no  means  could  be 
more  unskilfully  chosen  for  that  end  than  to  pass  usury  laws, 
since  such  laws,  so  far  as  they  are  obeyed,  have  necessarily 
the  opposite  tendency;  and  even  when  violated  redound 
to  the  disadvantage  of  borrowers,  so  long  as  the  laws  them- 
selves are  popularly  regarded  as  of  any  legal  or  moral 
force. 

In  1716,  the  Bank  of  England,  as  a  great  loaning  institu- 
tion, was  exempted  from  the  operation  of  all  usury  laws : 
why  the  bank  only,  and  not  other  people  as  well,  the  Act 
of  Parliament  does  not  state.  In  1867,  the  State  of  Massa- 
chusetts repealed  all  its  usury  laws,  though  6%  is  to  be 
understood  in  the  absence  of  special  agreement,  and  the 
result  has  been  entirely  satisfactory  to  all  classes  of  the 
people.  Rhode  Island  had  done  this  previously,  and  Con- 
necticut did  it  subsequently,  and  both  have  experienced 
equal  satisfaction  in  the  result.  Other  States  will  soon 
follow  in  their  lead ;  and  this  relic  of  ignorance  and  preju- 
dice will  pass  away.  Adam  Smith  left  the  Wealth  of 
Nations  disfigured  by  the  concession  that  governments 
might  properly  enough  pass  usury  laws  ;  but  it  is  gratifying 
to  be  able  to  add  that  he  was  convinced  of  his  error  in 
that  by  Bentham's  book  on  Usury,  and  fully  acknowledged 
his  conviction  in  the  spirit  of  a  genuine  lover  of  truth. 


MONEY.  449 

We  conclude,  then,  that  usury  laws  are  needless,  since  inter- 
est, like  all  other  prices,  will  perfectly  adjust  itself.  They 
are  disregarded,  since  lenders  will  loan  or  withhold  their 
money  according  to  their  own  keen  sense  of  interest.  They 
are  pernicious,  since  they  infringe  the  rights  of  property, 
and  tend  to  prevent  weak  borrowers  from  having  a  fair 
chance  in  the  market. 

The  present  writing  is  at  midsummer,  1890 ;  and,  in 
order  to  complete  the  entire  discussion  so  far  as  this  coun- 
try is  concerned,  it  is  needful  to  add,  that,  between  1878 
(when  specie  payments  were  resumed)  and  1890,  the  cir- 
culating medium  of  all  kinds  is  proven  by  official  statistics 
of  the  highest  authority  to  have  increased  from  $805,793,- 
807  to  $1,405,018,000,  or  more  than  57  per  centum.  This 
circulating  medium  consists  of  six  formal  kinds ;  namely, 
gold,  silver,  greenbanks,  bank-bills,  gold-certificates,  and 
silver-certificates.  Each  of  these  differs  in  important 
respects  from  each  of  the  rest,  but  all  come  alike  under 
our  fundamental  classification  of  Moneys,  as  either  an 
intermediate  merchandise  or  promises  to  render  it.  This 
increase  is  way  beyond  any  increase  in  the  population  of 
the  country,  and  way  beyond  any  apparent  or  proven  in- 
crease in  the  national  business ;  while  at  the  same  time  the 
banking  facilities  of  the  country,  which  always  spare  the 
use  of  Money  by  substituting  cheques  therefor  in  the  whole- 
sale business  and  in  a  large  share  of  the  retail  business  also, 
have  been  increasing  in  equal  measure.  The  number  of 
national  banks,  especially  in  the  West  and  South,  has  been 
multiplying.  The  use  of  cheques  has  been  enlarging  in 
every  commercial  community  in  the  land.  Yet  up  to  the 
present  time  all  of  this  vast  volume  of  Money  has  been 
kept  at  par  with  gold,  and  consequently  at  the  highest 
state  of  efficiency  for  commercial  purposes. 

What   about   the   immediate   future?     Science   is    not 


450  PRINCIPLES   OF   POLITICAL   ECONOMY. 

prophecy  except  in  a  quite  subordinate  sense.  Congress 
is  loudly  threatening  at  this  very  moment  to  more  than 
double  the  enforced  monthly  coinage  of  silver  dollars  at 
the  public  expense  for  the  sole  benefit  of  a  comparatively 
few  miners  of  silver.  If  this  threat  be  executed  upon  a 
long-suffering  people  of  tax-payers,  who  will  have  no  one 
to  blame  but  themselves  if  they  tolerate  the  outrage, 
Science  is  willing  to  venture  the  prediction,  that  the 
monetary  standard  here  will  drop  from  gold  to  silver 
within  a  twelvemonth  or  two ;  that  general  prices  will  rise 
much  beyond  the  appreciation  of  money  implied  in  that 
drop,  though  they  will  be  illusory  and  gainless ;  that  pru- 
dent debtors  will  hold  high  carnival  for  a  time  at  the  ex- 
pense of  their  creditors ;  that  the  country  will  become  as 
empty  of  gold  as  a  contribution-box  is  of  other  money 
between  Sundays;  that  foreign  trade  (soon  to  be  ex- 
plained), already  in  a  sickening  decline,  under  restric- 
tions and  prohibitions,  will  hasten  to  a  practical  demise ; 
and  that  the  United  States,  at  once  the  laughing-stock  and 
the  victim  to  the  superior  intelligence  of  other  nations,  will 
come  through  alternate  fever  and  chills  to  a  position  of 
common  sense  and  ultimate  recovery. 


FOREIGN   TEADE.  451 


CHAPTER  VI. 

FOREIGN  TRADE. 

WONDERFUL  is  the  continuity  in  the  growth  of  any 
great  Science,  and  equally  so  the  persistency  of  any  radical 
error  that  once  gets  fairly  imbedded  within  it.  As  we 
saw  fully  in  the  last  chapter  Money  is  nothing  in  the 
world  but  a  convenient,  intermediate,  equivalent,  and 
easily  measurable  merchandise  ;  but  almost  as  soon  as  men 
began  to  analyze  Sales  and  to  generalize  from  their  data,  a 
notion  nestled  way  down  in  their  work,  that  Sales  against 
Money  were  somehow  or  other  different  from  Sales  against 
other  merchandise;  and  thence  sprang  up,  particularly 
among  the  Romans,  what  we  have  called  the  Bullion 
Theory.  The  broad  and  the  true  view  was  held  indeed 
from  the  beginning,  and  was  maintained  even  among  the 
Romans,  as  we  learn  from  an  interesting  passage  in  the 
Roman  Law,  — "  Sabinus  and  Cassius  think  Value  can 
dwell  in  another  thing  than  money  too,  whence  is  that  which 
was  commonly  said,  Buying  and  Selling  is  carried  on  in  the 
exchange  of  goods,  and  that  view  of  purchase  and  sale  is  very 
old ;  but  the  opinion  of  Procullus  has  deservedly  prevailed, 
who  says,  Exchange  is  a  particular  kind  of  transaction  dif- 
ferent from  Selling" 

Science  has  indeed  sloughed  off  this  old  and  vital  error, 
and  most  of  its  sequels ;  but  Public  Opinion  in  many 
countries  is  full  of  it  still ;  and  Legislation,  in  our  own 
country  at  least,  is  all  thp  time  trying  or  threatening  to 


452  PRINCIPLES   OF   POLITICAL   ECONOMY. 

transmute  merchandise  (say  silver)  into  money,  as  if  that 
could  raise  its  value  or  change  its  nature. 

It  was  but  a  single  step  from  the  Bullion  Theory  to  the 
Mercantile  System.  If  money  be  somehow  different  from 
and  better  than  merchandise,  then  each  nation  should 
strive  to  handle  its  foreign  trade  so  as  to  get  back  from 
other  nations  more  money  than  it  renders  to  them  in 
exchange  :  in  other  words,  each  nation  must  try  to  sell  to 
the  rest  more  goods  than  it  takes  goods  back  in  pay,  so  as 
to  have  a  "  balance  "  come  in  of  gold  and  silver.  How 
natural  the  transition  from  Bullionism  to  Mercantileism ! 
And  it  was  a  step  of  genuine  progress  too.  Goods  are 
good,  and  there  is  profit  in  their  exchange ;  but  gold  is 
somehow  better  than  goods,  and  we  must  manage  some- 
how to  get  a  "  balance  "  in  that !  If  this  position  had 
only  been  sound,  and  one  nation  only  been  in  possession 
of  the  precious  secret,  how  nicely  it  might  have  worked 
for  that  nation  !  But  all  the  leading  Nations  of  Europe 
made  the  transition  from  Bullionism  to  Mercantileism  at 
one  and  the  same  time,  and  they  vexed  and  impoverished 
each  other  for  three  half-centuries,  and  went  to  war  with 
each  other  besides,  under  the  double  illusion,  (1)  that  gold 
could  be  practically  gotten  in  that  way,  and  (2)  that  if 
gotten  it  were  one  whit  better  than  the  goods  for  which 
it  would  have  been  at  once  spent. 

Economics  as  a  Science  is  now  free  from  every  taint  of 
Mercantileism  also,  but  it  lingers  on  more  or  less  in  half- 
informed  minds,  and  in  the  less-experienced  nations  ;  and 
the  system  itself  merged  itself  three  half-centuries  ago 
into  another,  which  is  not  another,  namely,  into  Protec- 
tionism. If  nation  A  must  sell  more  goods  'to  nation  B 
than  it  takes  back  in  goods,  so  as  to  get  the  coveted 
"  balance  "  in  gold  from  B,  would  it  not  help  that  cause 
along  to  put  obstacles  in  the  way  of  restrictions  or  pro- 


FOREIGN   TRADE.  453 

hibitions  against  the  introduction  of  goods  from  B  to  A  ? 
Less  goods,  more  gold,  argues  A.  A  forgets  that  the  same 
mental  processes  are  going  forward  in  B's  mind  towards 
the  same  conclusion  in  relation  to  A.  Now,  cogitates  A, 
what  kind  of  goods  from  B  had  we  better  restrict  or  pro- 
hibit ?  A,  by  the  way,  consists  of  some  millions  of  indi- 
viduals, some  of  whom  are  always  on  the  watch  to  get 
their  axes  ground  at  the  government  grindstone.  What 
kind  of  goods  shall  we  prohibit  from  B  ?  Why,  of  course, 
those  kinds  which  we  are  now  making  or  growing.  We 
can  supply  these  for  ourselves.  It  does  not  escape  the 
notice  of  these  makers  and  growers,  that  the  restriction  or 
prohibition  of  similar  goods  from  B  will  raise  the  price  at 
home  of  their  own  goods.  Scarce  is  ever  costly.  On  go 
the  restrictions,  ostensibly  at  first  in  behalf  of  an  imag- 
inary "  balance  "  in  gold,  which  fragile  reason  soon  passes 
out  of  mind  in  the  presence  of  a  very  real  reason  for  such 
restrictions,  namely,  artificial  high  prices  for  certain  do- 
mestic goods,  paid  indeed  by  the  entire  home  community 
to  the  comparatively  few  makers  or  growers  of  the  goods 
now  "  protected,"  as  the  current  phrase  is.  Mercantileism 
has  passed  over  into  protectionism.  The  feeble  friends  of 
a  "  balance  "  have  now  become  the  strong  friends  of  a 
"  monopoly."  Personal  greed  to  grow  rich  at  the  expense 
of  one's  own  countrymen  thus  becomes  the  single  or  com- 
bined force  that  puts  on  and  keeps  on  and  piles  up  the 
so-called  "  protective  "  restrictions  and  prohibitions. 

Scientifically  Protectionism  is  as  dead  as  Mercantileism 
and  Bullionism.  There  is  not  an  Economist  in  Christen- 
dom, of  any  international  or  even  national  reputation,  who 
now  undertakes  fairly  and  squarely  by  means  of  analysis 
and  induction,  to  propound  or  defend  a  scheme  so  contrary 
to  common  sense  and  common  honesty  as  this  is,  and 
which,  universally  applied,  would  annihilate  the  commerce 


454  PRINCIPLES    OF    POLITICAL   ECONOMY. 

of  the  world.  But  many  of  the  nations  are  still  tinctured 
more  or  less  by  the  old  subtlety,  and  powerful  classes 
within  them  and  specially  within  the  United  States,  classes 
grown  rich  and  "powerful  by  what  is  nothing  else  than 
public  plunder,  are  strenuous  and  successful  advocates, 
not  in  open  discussion  and  fair  debate  but  by  clandestine 
and  corrupting  methods  and  combinations,  to  maintain 
in  the  light  of  the  nineteenth  century  an  outworn  and 
decrepit  "something  "  worthy  only  of  the  dark  ages.  The 
old  and  foolish  cry  for  a  "  balance  of  trade  "  is  merged 
now  in  the  United  States  into  the  insane  and  hateful 
clamor  for  the  destruction  of  public  trade  in  the  behalf  of 
private  gain. 

This  is  the  sole  reason  why  we  must  now  undertake  a 
careful  chapter  on  Foreign  Trade.  There  is  no  reason  in 
the  nature  of  things,  or  in  the  nature  of  trade,  why  Foreign 
Commerce  should  be  treated  of  separately  from  Domestic 
Commerce.  The  two  are  precisely  alike  in  all  their  prin- 
ciples and  in  all  their  results.  In  one  as  in  the  other,  in 
every  case  and  everywhere,  there  are  (1)  two  persons,  each 
of  whom  has  a  Service  in  his  hands  to  sell  against  a  Ser- 
vice in  the  hands  of  the  other ;  (2)  two  reciprocal  estimates, 
by  which  each  owner  concludes  that  he  prefers  the  Service 
of  the  other  to  his  own;  (3)  two  mutual  renderings,  by 
which  each  Service  comes  into  the  possession,  present  or 
prospective,  of  the  new  owner ;  and  (4)  two  personal  satis- 
factions as  the  result  of  all,  constituting  the  ultimate 
motive  and  the  sole  reward  of  Buying  and  Selling. 

There  are  two  possible  differences  in  certain  cases  be- 
tween Domestic  and  Foreign  trade,  both  superficial  and  but 
barely  worth  the  mention  here.  Foreign  countries  engaged 
in  trade  may  be  more  remote  from  each  other  than  places 
exchanging  products  within  the  same  country.  The  dis- 
tances, however,  between  Bangor  selling  ice  to  New  Orleans 


FOREIGN   TRADE.  455 

for  sugar,  and  Boston  selling  boots  and  shoes  to  San  Fran- 
cisco for  fruits  and  wine,  are  much  greater  than  those 
between  Liverpool  and  St.  Petersburg,  or  those  between 
Stockholm  and  Palermo ;  so  that,  it  may  be  said  in  gen- 
eral, that  the  trade  between  all  the  European  countries 
confronts  less  distances,  and  presumably  less  costs  of  trans- 
portation, than  the  trade  within  the  United  States.  And 
another  thing  is  to  be  said  in  this  connection:  Foreign 
trade  as  a  general  rule  is  conducted  by  water-routes,  and 
domestic  trade  under  the  same  rule  is  carried  on  by  land- 
routes  ;  and,  therefore,  the  costs  of  transportation  by  the 
latter  are  much  more  expensive. 

The  other  possible  difference  is  more  considerable,  and 
considerably  more  in  favor  of  Foreign  as  compared  with 
Domestic  trade.  We  have  learned  perfectly  already,  and 
the  point  is  fundamental,  that  all  trade  proceeds  pn  the 
sole  basis  of  a  relative  Diversity  of  Advantage  as  between 
the  two  parties  exchanging.  This  relative  superiority  of 
each  exchanger  over  the  other  at  different  points  depends  in 
domestic  trade  partly  upon  divergent  natural  gifts  to  indi- 
viduals, partly  upon  their  concentration  of  mind  or  muscle 
or  both  on  a  single  class  of  efforts  each,  and  partly  upon 
the  use  and  familiarity  in  the  use  of  the  gratuitous  helps 
of  Nature  aiding  that  class  of  efforts.  But  in  foreign  trade 
there  are  commonly  some  additional  grounds  of  Diversity, 
since  the  various  countries  of  the  earth  have  received  from 
the  hands  of  God  a  diversity  of  original  gifts,  in  climate, 
soil,  natural  productions,  position,  and  opportunity.  And 
besides  these  original  international  differences,  there  has 
been  developed  of  course  in  the  history  of  the  inhabitants 
of  these  countries  a  diversity  of  tastes,  aptitudes,  habits, 
strength,  intelligence,  and  skill  to  avail  themselves  of  the 
forces  of  Nature  around  them.  International  trade,  accord- 
ingly, is  somewhat  more  broadly  and  firmly  based  than  the 


456  PRINCIPLES   OF   POLITICAL   ECONOMY. 

home  trade  can  be,  inasmuch  as  these  international  differ- 
ences are  apt  to  be  more  inherent  and  less  flexible  than 
domestic  differences  between  individuals ;  it  is  on  these 
diversities,  original,  traditional  and  acquired,  that  inter- 
national commerce  hangs ;  it  could  never  have  come  into 
existence  without  them ;  and  it  would  cease  instantly  and 
completely  were  they  to  fade  out.  Men  engage  in  foreign 
trade,  —  not  for  the  pleasure  of  it,  —  but  for  the  sake  of 
the  mutual  gain  derivable  to  both  parties ;  they  desist  from 
it  so  soon  as  that  mutual  gain  disappears ;  and  there  is  no 
gain  in  any  series  of  exchanges,  unless  each  party  has  a 
superior  power  in  producing  that  which  is  rendered,  com- 
pared with  his  power  in  producing  that  which  is  received. 

With  these  few  preliminaries,  we  pass  now,  in  the  first 
place,  to  unfold  in  order  the  COMMON  AND  UNIVERSAL 
PRINCIPLES  OF  FOREIGN  TRADE.  For  the  sake  of  illustrat- 
ing these,  we  will  now  take  a  simple  supposed  case,  a  trade 
between  England  and  France  in  cottons  and  silks,  and 
follow  it  through  clearly  to  the  end. 

1.  When  will  it  be  mutually  profitable  for  England, 
that  is,  for  certain  English  merchants,  to  send  cottons  to 
France  to  buy  silks  with,  and  for  France,  that  is,  for  certain 
French  traders,  to  send  silks  to  England  to  buy  cottons 
with?  Money  and  all  other  commodities  except  these  two, 
silks  and  cottons,  are  wholly  out  of  the  question  now  and 
should  be  wholly  out  of  our  minds  the  while,  though  for 
simplicity's  sake  we  shall  use  the  denominations  of  money 
for  comparing  the  respective  efforts,  translating  pounds 
and  francs  into  dollars.  The  answer  is  easy :  the  trade 
will  be  mutually  profitable,  when  efforts  bestowed  in 
France  upon  silks  will  procure  through  exchange  with 
England  more  of-  cottons  than  the  same  amount  of  efforts 
bestowed  in  France  upon  cottons  will  produce  of  cottons 
directly ;  and  then,  when  efforts  bestowed  upon  cottons  in 


FOREIGK   TRADE.  .       457 

England  will  procure  more  of  silks  through  exchange  with 
France  than  the  same  amount  of  efforts  bestowed  in  Eng- 
land upon  silks  will  produce  of  silks  directly.  It  is  not  a 
question  of  the  absolute  cost  of  either  commodity  to  the 
parties  producing  it,  or  of  a  comparison  of  those  absolute 
costs  at  all,  but  a  question  of  the  relative  cost  of  that  pro- 
duced in  either  country  compared  with  what  would  be  the 
cost  of  the  other  commodity  were  it  to  be  produced  in  that 
country.  So  long  as  there  is  a  difference  of  relative  effi- 
ciency in  the  production  of  the  two  commodities  in  the 
two  countries,  so  long,  setting  aside  the  costs  of  carriage, 
may  there  be  a  profitable  exchange  of  the  two.  A  demand 
in  each  country  for  the  product  of  the  other  is  of  course 
presupposed  in  the  illustration. 

Suppose  now,  that  Efforts  in  England  on  certain  cottons 
be  gauged  at  $100,  and  that  Efforts  in  France  on  certain 
silks  be  gauged  at  880,  and  that  these  finished  commodities 
then  exchange  even-handed  against  each  other :  is  that  a 
losing  trade  for  England  and  a  gainful  trade  for  France  ? 
That  is  more  than  we  can  tell  yet.  That  depends  upon 
the  further  decisive  question,  whether  the  Efforts  gauged 
at  $100  if  expended  in  England  in  the  manufacture  of  silks 
will  procure  as  many  and  as  good  silks  as  the  same  obtain 
in  exchange  with  France  ;  and  whether  the  Efforts  gauged 
at  $80  if  expended  in  France  on  cottons  directly  will 
secure  as  many  of  them  as  if  expended  on  silks  directly 
and  then  traded  off  for  cottons.  In  effect  the  Frenchmen 
ask,  Can  we  get  more  and  better  cottons  by  working  on 
silks  and  then  trading  them  off  for  English  cottons  than 
we  can  get  by  equivalent  Efforts  in  working  on  cottons  at 
home  ?  Likewise  the  Englishmen  ask,  Can  we  get  more 
and  better  silks  by  working  on  cottons  at  home  and  then 
trading  with  France  for  silks  than  we  can  get  by  trying  to 
make  silks  directly  ?  France  by  climate  and  soil  and  habi- 


458      .          PRINCIPLES   OF    POLITICAL  ECONOMY. 

tudes  is  better  adapted  to  silks  than  cottons :  England  by 
virtue  of  the  same  is  better  adapted  to  cottons  than  silks-. 

2.  How  does  the  Diversity  of  relative  Advantage  prac- 
tically work  in  foreign  trade  ?  Let  us  suppose  that  while 
the  cottons  cost  $100  in  England,  it  would  cost  $120  to 
manufacture  there  as  good  silks  as  can  be  made  in  France 
for  $80  ;  and  that  while  the  silks  cost  but  $80  in  France, 
it  would  cost  $96  to  make  cottons  there  as  good  as  the 
English  can  make  for  $100.  On  this  supposition  France 
can  make  both  the  silks  and  the  cottons  at  a  cheaper 
absolute  cost  than  England  can.  What  of  it  ?  Does  that 
destroy  the  motive  and  the  gain  of  an  exchange  between 
the  countries  in  these  two  articles  ?  Let  us  see.  By  an 
exchange  with  England,  France  gets  for  $80  in  silks, 
cottons  which  would  otherwise  cost  her  $96,  which  is  a 
handsome  gain  of  20%  ;  while  England  gets  for  cottons 
costing  her  $100  silks  which  would  otherwise  have  cost 
her  $120,  which  is  another  handsome  gain  of  20%.  Al- 
though France  can  make  each  commodity  for  less  absolute 
money  than  England  can  make  either  of  them,  there  is 
a  Diversity  of  relative  Advantage  ;  and,  therefore,  there 
might  be  in  this  case,  as  there  is  actually  in  many  such 
cases,  a  very  profitable  trade.  The  efficiency  of  France  in 
making  silks  relatively  to  the  efficiency  of  England  in 
making  silks  is  in  the  ratio  of  80  to  120,  namely,  a  differ- 
ence of  50%  ;  while  the  aptitudes  of  France  in  making 
cottons  relatively  to  that  of  England  in  making  the  same 
is  only  in  the  ratio  of  96  to  100,  namely,  a  difference  of 
41-%.  So  long  as  England  offers  in  cottons  a  good  market 
for  French  silks,  how  utter  the  folly  and  large  the  loss 
of  France  in  going  to  work  to  make  cottons ! 

In  the  majority  of  cases,  doubtless,  foreign  trade  takes 
place  in  articles,  in  the  production  of  one  of  which  each  of 
the  respective  countries  has  an  absolute  advantage  over 


FOREIGN   TRADE.  459 

the  other ;  but  an  every  way  advantageous  trade  may  be 
carried  on  in  commodities,  in  the  production  of  both  of 
which  one  nation  shall  have  an  absolute  superiority  over 
the  other,  provided  only  that  this  superiority  be  relatively 
diverse  in  the  two  commodities,  as  has  just  been  shown. 
This  is  an  effectual  answer  to  the  ignorant  clamor  of  some, 
we  take  it,  who  make  objection  to  importing  articles  which 
might  be  made  at  home  for  the  same  sum  of  money  as 
foreigners  expend  in  making  them;  admitted,  that  they 
might^be  so  made,  does  it  follow  that  the  country  import- 
ing them  would  get  them  as  cheaply  by  making  them 
itself?  By  no  means  does  that  follow.  Let  no  nation, 
then,  be  in  haste  to  drop  a  trade,  because  it  thinks  it  can 
make  the  goods  received  in  exchange  as  cheaply  as  the 
other  nation  makes  them,  so  long  as  it  has  an  advantage 
absolute  or  relative  over  the  other  in  making  the  goods 
rendered  in  exchange  ;  and  when  that  advantage  ceases,  it 
may  be  sure  that  the  trade  will  drop  of  itself ;  because  it 
always  takes  motives  to  make  the  mare  go. 

3.  What  are  the  extreme  limits  of  the  Value  of  cottons 
and  silks  in  the  case  supposed,  and  when  will  a  third  nation 
be  able  to  undersell  either  in  the  ports  of  the  other  ?  This 
is  the  answer :  the  extreme  value  of  French  silks  in  Eng- 
lish cottons  will  be  80  and  96 ;  they  cannot  fall  below  80 
because  they  cost  the  French  that  to  manufacture  them ; 
they  cannot  rise  above  96,  because  at  that  rate  the  French 
can  make  cottons,  and  there  would  be  no  motive,  that  is, 
no  gain,  in  their  exchanging  for  cottons.  Nations,  that  is 
to  say,  individuals,  will  never  get  themselves  served  at  a 
greater  effort  than  that  at  which  they  can  serve  themselves. 
If  a  given  effort  does  not  realize  more  through  exchange 
than  it  would  do  directly,  then  that  exchange  ceases  of 
necessity,  as  fire  goes  out  for  lack  of  fuel.  The  extreme 
limits  of  the  value  of  English  cottons  in  French  silks  will 


460  PRINCIPLES   OF   POLITICAL  ECONOMY. 

be  100  (lowest)  and  120  (highest)  for  reasons  precisely 
similar  in  the  case  of  the  English.  Therefore,  the  highest 
profits  possible  to  both  nations  under  the  conditions  of  the 
trade  are  20%  each.  France  would  be  glad  to  take  the 
cottons  at  a  return  of  80  in  silks,  at  which  rate  her  gain 
would  be  20%,  and  she  cannot  under  any  circumstances 
offer  quite  96,  at  which  rate  her  gain  would  disappear. 

No  third  nation,  accordingly,  in  a  trade  of  silks  for 
cottons  can  expel  the  French  from  the  English  ports,  until 
it  is  prepared  to  offer  nearly  96  (or  more)  in  silks  in  return 
for  English  cottons ;  that  is  to  say,  until  its  efficiency  in 
making  silks  relatively  to  that  of  England  in  making  them 
presents  a  greater  difference  than  the  difference  of  efficiency 
between  France  and  England  in  making  silks,  which  is  a 
difference  of  50%.  England  would  be  glad  to  take  the 
silks  from  France  at  a  return  of  100  in  cottons,  at  which 
rate  her  gain  also  is  20%,  and  she  cannot  possibly  offer 
quite  120  in  cottons,  because  at  that  rate  her  gain  would 
wholly  vanish.  England  could  be  undersold  in  the  French 
ports,  when  somebody  is  ready  to  offer  nearly  120  (or  more) 
in  cottons  against  the  French  silks,  whose  quantum  in  the 
exchange  may  vary  from  80  towards  96.  Here  is  the  whole 
doctrine  of  one  nation  underselling  another  in  the  ports  of 
a  third  nation.  Silks  stand  here  for  sample  of  all  French 
commodities  of  whatever  name  and  cottons  for  all  English 
goods  whatsoever ;  and  England  and  France  stand  in  the 
illustration  for  any  and  all  nationalities.  Any  nation 
obtains  any  share  or  a  greater  share  in  the  commerce  of  the 
world  solely  in  virtue  of  a  greater  relative  efficiency  in 
producing  something  valuable,  as  compared  with  some  other 
nation's  power  in  producing  something  else  that  is  valuable. 

4.  How  does  the  varying  play  of  International  Demand 
affect  the  value  of  articles  in  foreign  trade  ?  The  answer 
is  clear  and  easy :  if  the  demand  for  French  silks  in  Eng- 


FOREIGN   TRADE.  461 

land  just  answers  to  the  demand  for  English  cottons  in 
France,  so  that  the  silks  offered  by  France  just  pay  for  the 
cottons  offered  by  England,  then,  cost  of  carriage  aside, 
the  gains  of  the  trade  will  be  equally  divided  between  the 
two  sets  of  merchants,  and  each  will  realize  20%  profits, 
because  neither  will  have  any  motive  to  lower  the  value  of 
its  commodity  below  its  highest  value.  The  Frenchmen 
from  their  point  of  view  will  offer  80  in  silks  and  take  96 
in  cottons :  the  Englishmen  from  their  standpoint  will 
offer  100  in  cottons  and  get  120  in  silks.  Demand  and 
Supply  are  equalized  at  a  point  of  value  most  favorable  to 
both  parties,  and  one  really  determined  by  the  relative  cost 
of  production. 

This  case  of  equalization,  though  possible,  is  likely 
rarely  to  occur  in  practice.  On  any  terms  of  exchange 
first  offered,  there  is  likely  to  be  a  stronger  demand  in  one 
country  for  the  product  of  the  other  than  in  this  country 
for  the  product  of  that.  This  will  of  course  lead  to  a 
change  of  Value,  and  a  new  division  of  Profits.  The 
product  for  which  the  demand  is  less  will  find  its  market 
sluggish,  and  in  order  to  tempt  further  and  brisker  ex- 
changes will  be  compelled  to  offer  more  favorable  condi- 
tions. He  who  enters  a  market  in  quest  of  what  is  more 
in  demand  with  a  service  which  is  less  in  demand,  will 
have  to  lower  his  terms,  or  not  trade.  The  equalization 
of  Supply  and  Demand  will  only  be  reached  in  this  case, 
by  quickening  the  demand  for  the  commodity  now  less  in 
demand  through  an  offer  of  better  terms  in  trade.  Thus, 
if  the  demand  for  French  silks  in  the  English  ports  be 
slack,  in  comparison  with  the  demand  for  English  cottons 
in  France,  at  the  rate  of  exchange  first  established,  say,  80 
for  96,  the  French  merchant  has  no  resource,  if  he  wishes 
to  continue  the  trade,  but  to  agree  to  give  more  silks, for 
the  same  amount  of  cottons,  say,  85  for  96.  If  this  actual 


462  PRINCIPLES    OF   POLITICAL   ECONOMY. 

reduction  prove  sufficient  to  cancel  the  account  in  cottons 
with  the  account  in  silks,  then  the  trade  will  proceed  on 
this  new  basis  for  a  while,  because  the  equalization  of 
demand  and  supply  has  been  reached  through  a  new  valu- 
ation of  the  two  commodities,  and  there  is  now  conse- 
quently a  new  division  of  the  profits.  France  gains  less 
than  13%  by  her  trade  with  England,  while  England  gains 
27%  in  her  trade  with  France. 

Under  these  new  terms  of  exchange,  it  is  quite  possible 
that  silks  may  again  become  heavy  in  reference  to  cottons, 
and  a  new  decline  take  place  in  their  relative  value.  If 
the  French  are  obliged  in  consequence  to  offer  90  for  96, 
in  order  to  obtain  the  cottons  they  want,  their  own  profits 
will  sink  to  6%,  while  the  same  causes  will  lift  the  English 
profits  to  35%.  If,  in  any  contingency,  the  French  were 
driven  by  the  state  of  the  market  to  concede  something 
near  to  96  in  silks  for  96  in  cottons,  the  trade  would  cease 
in  that  case,  just  as  every  transaction  ceases  when  the 
motive  for  it  ceases.  We  must  remember  of  course,  that 
the  cottons  of  England  are  just  as  likely  to  become  slack 
in  reference  to  silks,  as  the  silks  are  relative  to  the  cottons ; 
and  when  this  happens,  the  English  dealers  will  have  to 
lower  their  terms,  and  thus  surrender  a  larger  share  of  the 
profits  to  the  French.  By  this  ceaseless  play  of  Supply 
and  Demand,  within  the  outermost  limits  drawn  by  the 
relative  Cost  of  Production  at  the  time,  is  the  Value  of 
commodities  determined  in  Foreign  Trade ;  and  no  degree 
of  complication  in  the  variety  of  articles,  or  in  circuitous 
exchanges,  affects,  for  substance,  these  fundamental  prin- 
ciples. 

5.  What  are  the  causes  deciding  the  exportable  articles 
of  any  nation,  and  their  order  of  precedence  in  Export? 
Watch  a  little  at  this  point,  and  the  true  answer  will  loom 
up  steady  and  certain.  If,  instead  of  one  article,  say 


FOREIGN    TRADE.  463 

cottons,  England  sends  two  or  ten  kinds  of  goods  to 
France  in  payment  for  silks  or  wines  or  whatnot,  she  will 
of  course  send  in  preference  that  commodity  in  which  her 
own  commercial  efforts  are  relatively  most  efficient,  so 
long  as  the  French  demand  will  receive  it,  because  her 
own  profits  will  be  the  greatest  on  that;  then,  when  obliged 
to  lower  terms  on  that  down  to  the  point  of  relative  advan- 
tage at  which  her  next  available  article  stands,  she  will 
send  that  next  in  quantities  regulated  by  the  demand  for 
that;  and  so  on  down  to  the  end  of  the  list  of  possible 
exportables  to  France.  France  is  guided  as  to  her  export- 
ables  to  England  by  precisely  the  same  principles  and 
prospects  of  profit.  So  of  all  commercial  nations  whatso- 
ever. No  matter  whether  the  articles  be  one  or  many ;  no 
matter  whether  the  trade  be  a  direct  or  indirect  trade  ;  the 
profits  in  international  commerce  depend  in  all  cases,  first, 
upon  the  ratio  of  the  cost  of  what  is  rendered  to  what 
would  otherwise  be  the  cost  of  what  is  received,  secondly, 
upon  the  relative  intensity  of  the  two  Demands. 

It  follows  logically  and  necessarily  from  all  this,  that 
what  a  nation  purchases  by  its  exports,  it  purchases  by  its 
own  most  efficient  Production,  and  consequently  at  the 
cheapest  possible  rate  to  itself,  and  at  the  highest  possible 
profit  to  its  merchants.  Under  a  decent  freedom  of  inter- 
national choice  and  action,  of  sale  and  delivery,  only  those 
things  are  ever  exported,  for  the  procuring  of  which  a 
nation  possesses  decided  advantages  relatively  to  other 
nations,  and  relatively  to  its  own  advantages  in  producing 
directly  what  is  received  in  return ;  and  hence,"  the  return 
cargoes,  no  matter  what  they  have  cost  their  original  pro- 
ducers, are  purchased  by  this  nation  as  cheaply  as  if 
they  had  been  produced  by  its  own  most  advantageously 
expended  Effort.  This  is  a  wholly  impregnable  position ; 
and  the  advocates  of  restricting  and  prohibiting  Foreign 


464  PRINCIPLES   OF  POLITICAL   ECONOMY. 

Trade  are  challenged  to  try  their  hand  a  little  or  a  good 
deal  (as  best  suits  them)  at  its  bristling  defences. 

It  follows  also  from  the  discussion  under  this  head,  what 
shallow  thinkers  are  they,  who  deem  it  needful  that  each 
nation  should  be  able  "  to  compete  "  with  other  nations  in 
every  branch  of  production.  Why  are  they  not  consist- 
ent enough  to  apply  their  favorite  catchword,  " compete" 
to  domestic  exchanges  also,  and  require  that  the  clergyman 
shall  have  artificial  and  governmental  facilities  for  "  com- 
peting" with  the  lawyer,  the  tailor  with  the  blacksmith, 
the  farmer  with  the  manufacturer,  the  publisher  with  the 
author?  Will  folks  never  learn  that  all  Exchanges, 
domestic  as  well  as  foreign,  hang  on  relative  superiority 
at  different  points,  and  that  any  Nation  trying  to  make  its 
success  in  production  equal  at  all  points  would  be  just  as 
stupid  as  an  artisan  trying  to  learn  and  practice  all  the 
trades  at  once  ?  Suppose  the  said  nation  to  succeed,  what 
then  ?  It  would  supply  its  wants  at  a  certain  low  aver- 
age efficiency  of  effort ;  whereas,  by  a  thorough  develop- 
ment of  all  its  own  peculiar  resources,  it  could  command 
by  exchange  the  products  of  the  whole  world  at  a  cost  not 
exceeding  that  of  its  own  most  productive  and  efficient 
Exertion.  The  precious  metals,  whether  produced  at 
home  or  obtained  from  other  nations  by  another  series 
of  exchanges,  whether  coined  or  in  the  form  of  bullion, 
stand  here  in  the  same  relations  as  other  commodities,  and 
are  frequently  the  most  profitable  articles  that  a  nation 
can  export.  In  one  word,  whatever  justifies  individuals 
in  selecting'  diverse  paths  of  production  according  to  their 
capacities  and  opportunity,  the  same  (and  even  more)  jus- 
tifies the  Nations  in  fully  drawing  out  their  own  best  capa- 
bilities under  the  conditions  in  which  God  has  placed 
them ;  and  then,  exchanging  what  costs  them  little  for 
what  would  otherwise  cost  them  much,  in  enjoying  all 


FOREIGN   TRADE.  465 

that  the  world  offers  at  the  least  possible  expenditure  of 
irksome  effort.  Such  wise  and  wide  action  promotes  the 
common  good  of  all  the  nations,  and  makes  the  best  of  all 
accessible  to  all,  and  arms  each  with  the  power  of  all; 
while  the  narrow  and  senseless  policy  of  drawing  into 
one's  own  shell  after  putting  up  barricades  against  one's 
neighbors,  by  lessening  everywhere  the  Diversities  of  rela- 
tive Advantage,  so  far  forth  incapacitates  all  for  profitable 
and  progressive  Exchanges. 

6.  How  do  new  improvements  in  machinery  and  other 
enhanced  facilities  of  Production  in  one  country  affect  its 
foreign  trade  ?  A  cheering  response  will  be  drawn  out,  if 
we  now  apply  this  question  to  the  conditions  of  our  old 
trade  in  silks  and  cottons.  Suppose  France  by  new 
methods  of  silk  culture  to  become  able  to*  make  the  silk 
which  before  cost  $80  for  $50,  cottons  in  France  and  silk 
and  cottons  in  England  remaining  in  natural  cost  as  be- 
fore, does  France  alone  gain  the  entire  advantage  of  the 
increased  cheapness  of  silk  ?  Wait  a  minute,  and  we  will 
see.  The  production  of  silk  in  France  is  greatly  quick- 
ened by  the  cheaper  methods,  more  is  produced,  more  is 
carried  to  England  to  buy  cottons  with,  but  at  the  old  rate 
of  80  for  96,  the  English  will  not  take  any  more  silks,  and 
the  French  who  can  now  abundantly  afford  it,  since  their 
nominal  80  is  really  50,  will  offer  more  silks  for  96  in 
cottons,  in  order  to  tempt  a  brisker  and  broader  sale. 
They  offer,  say,  96  in  silks  for  96  in  cottons,  and  if  that 
reduction  of  Value  of  silks  in  cottons  be  enough  for  the 
equalization  of  the  respective  Demands,  the  trade  will  pro- 
ceed on  that  basis,  at  least  for  a  time ;  and  as  there  is  now 
a  larger  difference  of  relative  advantage  than  before,  there 
will  be,  as  always  in  such  cases,  larger  profits  to  be  divided 
between  the  two  parties.  The  96  now  in  silks  to  the 
English  is  really  only  60  in  cost  to  the  French,  so  that  the 


466  PRINCIPLES    OF   POLITICAL   ECONOMY. 

French  gain  in  the  trade  is  largely  increased;  because 
they  now  get  for  what  costs  them  60  what  would  other- 
wise cost  them  96,  a  clear  gain  of  60  %.  Before  the  new 
methods  of  silk  culture  were  introduced  they  could  gain 
but  20  °/0  at  the  utmost. 

But  the  English  have  also  reaped  largely  from  the  inge- 
nuity and  diligence  of  their  neighbors.  Before,  they 
gained  only  20  %  in  the  exchange  at  best ;  but  now  they 
get  for  what  cost  them  $100  that  which  would  otherwise 
cost  them  $144,  a  handsome  profit  of  44  %.  Indeed,  it 
might  easily  happen,  through  the  incessant  changes  in 
International  Demand,  that  even  a  larger  share  of  the 
benefit  of  the  French  improvements  should  accrue  to  the 
English  than  to  the  French  themselves;  the  share  of 
the  French  all  the  while  being  large,  and  much  larger, 
than  if,  greedily  endeavoring  to  keep  all  the  benefit,  they 
should  refuse  to  trade  at  all.  Thus  we  reach  again  from 
another  outlook,  a  grand  and  universal  doctrine  of  Ex- 
change, that  each  party  is  benefited  by  the  progress  and 
prosperity  of  the  other.  Indeed,  the  only  possible  way  in 
which  all  nations  can  share  in  the  thrift  and  enterprise 
and  improvements  of  each  other,  is  through  mutual  inter- 
national exchanges ;  and  when  each  nation  sees  to  it  that 
it  have  a  few  commodities  at  least  for  which  there  is  a 
strong  demand  among  foreigners,  and  in  the  production  of 
which  themselves  have  a  strong  superiority,  it  may  rest 
assured  that  it  buys  all  it  buys  from  abroad,  gold  included, 
at  the  cheapest  rate  to  itself,  and  shares  a  part  of  the  pros- 
perity of  every  nation  with  which  it  trades. 

7.    Which  party  in  foreign  trade  pays  the  Costs  of  Car- 
riage, or  do  each  pay  them  in  equal   proportion?     It   is 
plain,  that  the  aggregate  cost  of  transportation  to  the  for- 
eign markets  is  just  so  much  added  to  the  Cost  of  Produc 
tion,  and  is  a  deduction  of   so  much   from    what   would 


FOREIGN   TRADE.  467 

otherwise  be  the  whole  gain  of  the  Commerce ;  but  it  is 
plainly  not  true,  that  each  party  necessarily  pays  the  whole 
of  his  own  freights ;  and,  therefore,  that  the  party  carry- 
ing bulky  articles  is  at  a  disadvantage  compared  with  the 
other.  He  may  or  may  not  be  at  a  disadvantage  on  that 
account.  That  will  depend  on  the  effect  of  the  new  ex- 
pense for  freight,  however  divided,  on  the  Demand  in  each 
country  for  the  product  of  the  other.  We  will  suppose, 
that  in  the  outset  England  pays  the  whole  cost  of  carrying 
cottons  to  France,  and  France  the  whole  cost  of  sending 
silks  to  England ;  but  as  cottons  are  many  times  more 
bulky  than  silks  proportionably  to  value,  a  larger  bill  of 
freights  would  fall  of  course  to  England ;  and  cottons 
would  therefore  fall  in  value  relatively  to  silks ;  but  cot- 
tons and  silks  have  both  risen  absolutely,  that  is,  with  ref- 
erence to  any  given  effort,  or  with  reference  to  a  money 
standard. 

Suppose  now  that  France,  instead  of  80  for  96,  has  to 
render  82  for  96  ;  and  England,  instead  of  100  for  120, 
now  has  to  give  105  for  120.  The  French  gain  in  the 
trade  is  reduced  from  20  to  nearly  17%,  and  the  English 
gain  from  20  to  nearly  14%  ;  but  it  is  by  no  means  cer- 
tain, that  the  commerce  would  go  on  precisely  on  these 
terms ;  the  enhanced  value  of  silks  might  well  deaden  the 
demand  for  them  in  England,  more  than  the  relatively  less 
enhanced  value  of  cottons  in  France  would  affect  the 
demand  for  them.  Silks  have  risen  in  England  5%,  but 
cottons  have  risen  in  France  only  2^%  ;  it  is  therefore 
very  likely  that  thereafter  the  demand  for  cottons  will  be 
stronger  than  the  demand  for  silks,  and  if  so,  the  French 
will  have  to  offer  better  terms,  or,  what  is  the  same  thing, 
to  be  obliged  to  pay  a  part  of  the  English  freights;  so 
that  there  is  nothing  in  the  true  state  of  the  case  to  justify 
the  conclusion  jumped  at  by  some  people,  that  they  who 


468  PRINCIPLES   OF   POLITICAL   ECONOMY. 

carry  heavy  goods  are  at  a  disadvantage  compared  with 
those  who  carry  light  goods.  That  will  depend  wholly 
upon  the  Equation  of  International  Demand  as  between 
the  two  kinds  of  goods.  Nothing  in  the  nature  of  things 
hinders,  that  each  party  shall  in  effect  pay  the  freights  of 
the  other,  or  one  even  really  pay  the  freights  of  both. 

8.  Lastly,  what  is  the  effect  upon  international  com- 
merce of  the  constant  play  of  the  Par  of  Foreign  Ex- 
change. This  is  a  point  of  great  importance,  that  has 
been  but  little  discussed  in  this  connection,  because  it  has 
not  been  popularly  understood  or  scarcely  even  popularly 
explained.  In  the  light  of  the  full  unfolding  of  "  Credits  " 
in  our  Fourth  Chapter,  and  in  the  light  of  these  simple 
principles  now  under  discussion,  there  will  be  no  great 
difficulty  to  any  intelligent  reader  in  fully  understanding 
this  matter  of  Foreign  Exchange,  —  a  matter  never  before 
so  vital  to  the  commercial  interests  of  the  United  States 
as  now.  For  the  sake  of  general  illustration  we  will  take 
the  "  Exchange  "  as  between  the  United  States  and  Great 
Britain,  since  the  same  fundamental  principles  apply  as 
between  all  commercial  countries. 

When  merchants  export  goods,  say  from  New  York  to 
London,  or  vice  versa,  they  do  not  wait  for  their  pay  till 
the  goods  be  actually  marketed  abroad,  but  draw  at  once 
Bills  of  Exchange  to  the  amount  of  the  home  value  of  the 
goods  on  the  parties  to  whom  the  goods  are  sent,  and  then 
put  these  bills  on  present  sale  with  brokers  or  middlemen 
at  home.  There  thus  becomes  a  market  or  prices  current 
in  New  York  for  commercial  bills  drawn  on  London,  and 
similarly  a  market  in  London  for  bills  drawn  on  New  York. 
The  New  York  exporter,  accordingly,  is  not  certain  of 
getting  in  money  the  full  face  of  his  bill  minus  interest 
for  the  time  it  has  to  run,  because  a  great  many  such 
exporters  may  have  thrown  their  similar  bills  upon  the 


FOREIGN   TRADE.  469 

market  the  same  day,  which  always  tends  so  far  forth  to 
depress  the  price  of  the  bills  in  accordance  with  an  univer- 
sal law  of  Economics.  Scarce  is  ever  costly:  plenty  is 
ever  cheap. 

Who  buys  these  bills  when  exposed  for  sale  in  New 
York  ?  Who  wants  them  ?  Clearly,  only  those  who  have 
commercial  debts  to  pay  in  London.  A  bill  of  exchange 
drawn  in  New  York  on  London  is  nothing  but  a  debt  due 
from  somebody  in  London  to  anybody  whom  the  drawer 
in  New  York  chooses  to  make  the  payee.  The  debtor 
lives  in  London,  and  it  is  every  way  cheap  and  convenient 
for  all  parties,  that  he  settle  his  debt  with  a  creditor  living 
in  London.  So  it  happens,  that  parties  in  London  who 
have  sold  goods  in  New  York  and  drawn  bills  on  them  for 
present  payment,  expose  those  bills  for  sale  in  London  to 
the  parties  who  have  debts  to  pay  in  New  York.  If  now, 
London  or  those  whom  London  represents  in  these  transac- 
tions, have  sold  but  few  goods  to  New  York  or  to  those 
whose  business  is  settled  in  New  York  relatively  to  the 
amounts  sold  by  New  York  to  London,  then  London  bills 
will  be  relatively  scarce  as  compared  with  the  New  York 
bills  drawn  on  London.  In  other  words,  New  York  has 
more  debts  to  pay  in  London  than  London  has  in  New 
York,  and,  consequently,  the  parties  in  London  who  want 
bills  to  pay  New  York  debts  with,  have  to  buy  them  in  a 
relatively  scarce  market.  They  have  to  bid  for  them,  as  it 
were.  The  effect  of  this  is  always  to  carry  up  the  price  of 
that,  for  which  the  buyers  are  many  and  the  sellers  rela- 
tively few.  So,  under  perfectly  natural  causes,  London 
bills  on  New  York  come  to  a  premium ;  that  is  to  say,  the 
London  sellers  get  more  than  the  face  of  their  bills  drawn, 
and  the  trade  with  New  York  becomes  extra  profitable  to 
them. 

Suppose  London  bills  of   Exchange  on  New  York  are 


470  PRINCIPLES    OF   POLITICAL   ECONOMY. 

selling  for  101,  thus  giving  1%  extra  profit  to  English 
exporters ;  for  precisely  the  same  reasons  that  they  are  so 
selling,  New  York  bills  on  London  are  selling  in  New 
York  for  99,  thus  subtracting  1%  from  what  would  other- 
wise be  the  gains  of  the  New  York  exporters  to  England 
under  the  common  principles  of  Foreign  Trade.  It  is 
evident,  therefore,  that  the  causes  of  the  course  of  the 
international  Par  of  Exchange  are  an  essential  part  of  the 
principles  of  foreign  Commerce ;  and  whatever  tends  to 
derange  or  upset  the  natural  course  of  the  Par,  as  a 
constant  or  constantly  recurring  cause,  must  receive  care- 
ful attention  in  a  book  like  the  present.  We  have  begun 
at  the  very  beginning  of  this  matter,  and  we  are  now  going 
to  follow  it  up  to  the  very  end. 

The  Diversity  of  relative  advantage  in  the  Production 
of  the  two  commodities  exchanged,  is  the  first  and  chief 
ground  of  mutual  Profit  in  foreign  trade ;  the  varying 
Intensity  of  relative  Desire  on  the  part  of  each  exchanger 
for  the  product  of  the  other,  is  the  second  and  secondary 
ground  on  which  foreign  trade  must  go  on ;  and  the  third 
and  final  difference  as  between  the  two  parties,  which  goes 
to  make  or  mar  the  profit  of  each  of  them  in  the  trade,  is 
the  current  Price  of  the  Bill  of  Exchange  drawn  by  each 
creditor  on  his  debtor  abroad.  It  is  plain  that  these  three 
things  must  always  be  taken  into  account  simultaneously 
by  prudent  exporters  and  importers,  in  order  to  estimate 
the  prospect  of  a  profitable  trade  then  and  there ;  and  it  is 
plain  also,  that  one  or  even  two  of  these  three  differences 
of  relative  advantage  might  fade  out  for  a  time,  and  a 
profitable  trade  still  proceed,  provided  the  other  two  or 
one  of  these  differences  were  sufficiently  pronounced.  For 
example,  to  take  an  extreme  case,  silks  from  France  might 
still  go  to  England  for  cottons  to  the  advantage  of  both 
countries  for  a  time,  though  "exchange"  were  exactly  at 


FOREIGN   TRADE.  47l 

"par  "  between  them  and  the  "  demand  "  for  silks  were  pre- 
cisely met  by  the  "  demand  "  for  cottons,  on  the  strength 
of  a  marked  and  persistent  diversity  in  relative  cost  of 
production  of  the  two  textiles. 

Here  is  another  of  the  trinities  of  Political  Economy. 
Here  is  complication  indeed,  but  a  complication  regulated 
and  beautified  by  inflexible  laws  of  Nature  and  the  scarcely 
less  inflexible  laws  of  human  Motives. 

So  far  the  argument  has  proceeded  on  the  supposition  of 
a  common  standard  of  Value,  say  gold,  between  England 
and  France,  London  and  New  York,  and  by  implication  all 
other  commercial  countries.  Commerce  rejoices  in,  and 
progresses  by,  a  common  measure  of  Values.  By  an  expe- 
rience of  2000  years  the  world  has  proven  gold  to  be  the 
best  international  Measure.  From 'a  simple  comparison  of 
the  weights  of  pure  metal  in  the  standard  coins  of  the 
nations  is  established  a  fixed  monetary  "  par  "  as  between 
them.  Thus  the  dollar  of  the  United  States  contains  23.22 
grains  of  pure  gold,  and  the  English  pound  sterling  con- 
tains 113.001  grains  of  the  same ;  consequently,  there  are 
$ 4.8665  to  the  £  sterling,  and  this  is  and  has  been  since 
1834  the  monetary  upar"  between  the  United  States  and 
Great  Britain.  Similarly,  the  par  between  France  and  the 
United  States  is  $1  to  5  fr.  18  centimes,  since  the  franc  is 
19.29  cents  gold  for  gold.  The  monetary  par,  accordingly, 
as  between  any  two  nations  using  the  gold  standard,  is  a 
matter  easily  ascertained  and  kept  in  mind ;  while  the 
constantly  variable  prices  current  of  Bills  of  Exchange  are 
reckoned  in  and  from  this  monetary  par.  Thus,  if  a  com- 
mercial bill  drawn  in  New  York  on  London  sells  for 
$4.8665  minus  current  interest  for  the  time  it  has  to  run, 
English  "  exchange  "  with  us  is  said  to  be  at  "  par  "  ;  if  it 
sell  for  more  than  that,  exchange  is  technically  said  to  be 
"  against "  us,  although  the  excess  in  price  is  just  so  much 


472  PRINCIPLES   OF  POLITICAL  ECONOMY. 

additional  profit  to  the  American  exporter ;  and  if  it  sell 
for  less  than  that,  exchange  is  said  to  be  in  our  "favor" 
although  the  difference  is  just  so  much  subtracted  from  the 
gains  of  the  American  exporter. 

The  close  of  the  second  week  in  July,  1890,  found  in 
New  York  "  Sterling  exchange  dull  but  firm,  with  actual 
business  at  $4.84f  for  60-day  bills  and  $4.89  for  demand 
bills :  the  posted  rates  were  $4.85^  and  $4.89^  respectively." 
Exchange,  accordingly,  had  turned  "  against "  the  United 
States,  that  is  to  say,  American  exporters  could  get  a  little 
more  for  their  bills  on  London  than  the  monetary  par. 
Under  such  circumstances  it  may  be  cheaper  to  send  the 
gold  to  liquidate  a  British  debt  than  to  buy  bills  and  send 
them.  Just  this  happened  last  week :  $2,000,000  in  gold 
went  (mainly  under  this  impulse)  from  New  York  to 
London.  There  is  a  limit,  therefore,  to  any  further  rise  in 
the  price  of  "exchange,"  when  it  reaches  in  an  upward 
direction  the  then  present  cost  of  sending  gold  to  foreign 
creditors.  The  limit  in  the  downward  direction  to  the 
price  of  exchange  is  the  last  margin  of  profit  to  the  exporter 
as  such.  Thus,  when  the  New  York  exporter  can  only 
get,  say,  14.83  for  his  sight  bill  of  exchange  on  London, 
his  loss  in  the  trade  so  far  forth  is  1%  ;  and  it  may  be 
doubtful,  whether  his  possible  gains  at  the  other  two  points, 
namely,  relative  cost  of  production  and  relative  intensity 
of  demand,  will  overbalance  this  certain  loss  and  leave  a 
sufficient  margin  of  profit. 

This  chance  of  profit  or  loss  from  casual  turns  in  the 
commercial  "  exchanges  "  is  a  very  small  matter  in  foreign 
trade  in  comparison  with  the  other  two  grounds  of  possible 
profit  or  loss.  The  main  thing  for  every  commercial  nation 
to  see  to  is,  that  it  have  at  least  a  few  (the  more  the  better) 
commodities  in  general  use  throughout  the  world,  in  the 
cost  of  the  production  of  which  it  has  a  relative  advantage 


FOREIGN   TRADE.  473 

over  all  competitors,  and  the  demand  for  which  by  foreigners 
is  relatively  intense  and  constant.  And  it  will  never  come 
amiss  for  any  nation  with  these  two  crucial  advantages  to 
keep  a  sharp  watch  over  a  class  of  its  own  citizens,  lest 
they,  shrewdly  and  greedily,  for  special  reasons  of  their 
own,  get  laws  passed  the  result  of  which  can  only  be  to 
increase  the  costs  of  production  of  these  few  exportables,  and 
at  the  same  time  lessen  the  foreign  demand  for  them.  ETER- 
NAL VIGILANCE  IS  THE  PRICE  OF  LIBERTY  OF  COMMERCE. 

As  a  general  rule  for  the  last  half  century  commercial 
"exchanges"  have  been  "against"  Great  Britain,  that  is, 
her  exporters  have  been  able  to  get  more  than  "  par  "  for 
goods  sent  abroad  in  the  price  of  the  bills  drawn  on  them, 
and  her  commerce  has  been  profitable  to  her  so  far  as  this 
cause  is  concerned ;  which  during  the  same  interval  of 
time  the  "  exchanges  "  have  been  "  in  favor  "  of  the  United 
States,  that  is,  her  exporters  hcive  been  obliged  to  sell  their 
bills  drawn  for  less  than  "  par,"  and  her  commerce  so  far 
forth  has  been  unprofitable  to  her.  We  may  only  briefly 
indicate  here  the  causes  of  this  state  of  things. 

(a)  Great  Britain  has  been  during  this  period  a  vast 
leaner  of  Capital  to  other  countries,  and  particularly  to 
the  United  States ;  while  the  United  States  has  been  a  vast 
borrower  of  Capital,  particularly  from  Great  Britain.  The 
interest  on  these  loans  from  Britain,  and  the  principal  also 
so  far  as  it  has  been  repaid,  has  been  constantly  remitted 
thither  in  goods  for  the  most  part,  and  bills  of  exchange 
drawn  on  these  goods  have  been  sold  at  all  ports,  and  par- 
ticularly at  New  York;  the  abundance  of  these  bills  has 
tended  of  course  to  lower  their  price  at  the  place  of  sale, 
and  so  far  forth  to  heighten  in  effect  the  relatively  less 
abundant  British  bills  drawn  on  exports  thence  ;  and  the 
creditor  country  for  this  reason  is  apt  to  sell  its  bills  above 
"  par,"  and  the  debtor  country  its  bills  below  par.  It  makes 


474  PRINCIPLES   OF   POLITICAL  ECONOMY. 

no  difference  at  this  point  how  the  borrowed  funds  have 
been  invested  by  the  borrowing  country,  since  the  interest 
and  the  principal  must  be  repaid  at  some  time  chiefly  in 
the  manner  just  indicated. 

(b)  With  the  exception  of  a  dozen  or  two  articles  cus- 
toms-taxed for  simple  revenue,  Great  Britain  in  this  period 
has  kept  her  ports  absolutely  open  to  imports  from  all  the 
world,  and  of  course  to  all  imports  from  the  United  States, 
which  has  tended  to  swell  the  volume  of  imports  into  that 
country,  and  the  volume  of  foreign  bills  drawn  on  them, 
particularly  of  United  States  bills  ;  while  the  United  States 
during  the  same  time  has  excluded  imports  by  customs- 
taxes  designed  for  that  very  purpose,  to  the  number  of  over 
4000,  and  in  many  cases  to  a  height  of  tax  involving  pro- 
hibition of  import.     The  Constitution  of  the  United  States 
expressly  forbids  customs-taxes  upon  exports,  so  that  goods 
may  indeed  go  out  freely,  so  far  as  tariff-barriers  are  con- 
cerned ;    but  as  the  only  impulse  that  ever  carries  goods 
out  is  to  get  back  more  desirable  goods  in  pay,  and  as  these 
return-goods  are  greatly  restricted  or  virtually  prohibited 
by  the  United  States,  the  Constitutionally-free  exports  are 
not  large  enough  to  help  much  in  keeping  down  below 
"  par  "  the  price  of  bills  of  exchange  drawn  here.     It  should 
also  be  said  that  Great  Britain  is  restrained  in  her  exports 
to  the  United  States  by  the  latter's  legal  unwillingness  to 
receive  them,  which  tends  of  course  to  keep  the  price  of 
bills  drawn  on  the  exports  she  can  and  does  send  still  more 
above  "par." 

(c)  The  enormous  customs-taxes  in  the  United  States  on 
ship-building  materials  and  on  almost  everything  else  have 
practically  destroyed  the   ocean  merchant-marine    of   the 
country.     The  bulk  of  the  Freights,  therefore,  on  what 
foreign  commerce  there  is  left  to  us  under  the  Chinese-wall 
policy  of  our  Government,  —  the  bulk  of  the  freights  both 


FOREIGN  TRADE.  475 

ways,  —  has  to  be  paid  to  foreigners,  mostly  to  the  British, 
and  these  payments  too  are  made  in  exportable  goods, 
which  wretched  fact  (looked  at  in  its  causes)  increases 
exports  hence  relatively  to  imports  hither,  and  of  course 
diminishes  pro  tanto  the  current  price  of  mercantile  bills 
drawn  here.  So  far  as  these  extra  exports  to  meet  freight 
charges  are  carried  to  England,  they  tend  to  lift  there  in 
the  usual  way  the  price  of  bills  drawn  on  British  exports. 
It  is  a  million  pities,  no  matter  from  what  point  of  view 
one  looks  at  it,  that  the  present  governing  classes  of  this 
country  totally  misapprehend  the  Nature  of  foreign  trade, 
and  by  short-sighted  legislation  minimize  its  Benefits  to  the 
people. 

So  far  we  have  been  unfolding  the  causes  and  courses  of 
foreign  exchange  on  the  hypothesis,  that  both  the  nations 
exchanging  employ  the  same  standard  in  measuring  Values. 
While  the  present  paragraphs  were  in  process  of  composi- 
tion, the  President  of  the  United  States  signed  (July  14, 
1890)  the  so-called  "  Compromise  Silver  Bill,"  which  is  to 
go  into  operation  after  thirty  days,  and  the  effect  of  which 
in  the  judgment  of  some  of  the  best  .economists  and  finan- 
ciers of  the  country  may  be  to  bring  down  the  national 
measure  of  Values  from  the  gold  dollar  to  the  silver  dollar. 
We  are  bound  at  this  point,  therefore,  to  explain  the  action 
and  reaction  on  the  course  of  the  "  exchanges,"  of  a  mone- 
tary standard  lower  in  general  value  than  the  standard 
prevailing  in  the  commercial  world.  We  have  all  the  data 
needful  for  clearing  up  this  matter  completely,  at  once  in 
the  inflexible  laws  of  Money  and  in  the  actual  experience 
of  several  of  the  Nations.  For  example,  England  has  the 
gold  standard,  and  India  the  silver  standard;  there  is  an 
immense  commerce  between  the  two  countries ;  silver  is 
merchandise  and  not  money  in  London,  and  gold  is  mer- 
chandise and  not  money  in  India  ;  every  cargo,  accordingly, 


476  PRINCIPLES   OF   POLITICAL   ECONOMY. 

to  and  from  either  has  to  have  its  value  "  changed  "  through 
the  price  of  current  bills  into  the  current  money  of  the 
other  country;  the  price  of  silver  in  gold  in  London  (aver- 
age) between  1852  and  1867  was  61^  pence  per  ounce  ;  at  60 
pence  per  ounce  the  ratio  of  gold  to  silver  is  1 : 15.716 ; 
between  1875  and  1882  silver  drooped  (with  many 
fluctuations)  in  the  London  market,  bearing  about  the 
average  of  52J  pence  per  ounce,  which  is  a  ratio  with  gold 
of  1 : 18 ;  during  the  first  half  of  1890  the  price  of  silver  in 
London  was  as  nearly  as  possible  43  pence  per  ounce, 
which  is  a  ratio  with  gold  of  1 : 21.93 ;  so  that,  the  prices 
of  India  bills  in  London  and  of  London  bills  in  Bombay 
have  yielded  up  to  the  careful  observer  all  the  secrets  of 
the  "  exchanges  "  between  high-standard  and  low-standard 
countries. 

But  we  have  no  need  to  go  out  of  our  own  country  for 
illustrations  of  all  this.  Between  May,  1862,  and  January, 
1879,  the  "  Greenback  Dollar  "  was  the  measure  of  current 
Values.  It  was  depreciated  every  day  of  that  interval 
as  compared  with  the  gold  dollar,  and  it  fluctuated  in  the 
comparison  more  or  less  nearly  every  business  day.  The 
New  York  importer  bought  his  foreign  goods  for  gold, 
paid  the  customs-taxes  on  them  in  gold,  and  then  sold 
them  against  greenbacks.  How  much  must  he  charge  for 
his  goods  in  order  to  make  himself  whole  ?  The  current 
premium  in  gold  over  greenbacks  was  posted  every  day, 
and  perhaps  every  hour,  but  was  that  a  safe  guide  to 
greenback  prices  for  our  importer  ?  Wholesales  are  rarely 
for  immediate  realization  in  money,  and  even  if  they  were, 
the  money  would  have  to  be  rechanged  into  gold  in  the 
future  for  repurchases  abroad.  In  the  uncertainty  of 
greenback  values,  the  importer  must  insure  himself  in  his 
prices  to-day  against  a  possible  further  depreciation  next 
week,  or  next  month.  In  other  words,  he  must  speculate 


FOREIGN   TRADE.  477 

in  the  prospective  gold  premium.  Suppose  his  industrial 
cycle  to  be  one  month.  If  he  sell  his  foreign  goods  in 
greenbacks  to-day  as  these  stand  in  comparison  with  gold, 
and  greenbacks  fall  still  lower  before  the  month  is  out, 
he  will  lose  money  in  those  transactions;  if  greenbacks 
should  rise  in  the  interval,  he  would  gain  money,  because 
he  could  get  more  gold  for  them  in  the  next  turn.  To 
the  credit  of  human  nature  be  it  said,  that  in  9  cases  out 
of  10  a  merchant  will  raise  the  present  prices  of  his  goods 
in  order  to  make  himself  as  sure  as  possible  in  a  case  where 
all  is  uncertain.  There  can  be  no  reasonable  doubt  that 
in  the  fifteen  years  of  depreciated  greenback  units,  retail 
prices  to  ultimate  consumers  were  lifted  10%  above  the 
average  reckoning  of  goods  in  greenbacks  from  this  cause 
alone. 

In  regard  to  exports  at  that  time  the  facts  and  principles 
are  still  clearer.  These  exports  were  sold  in  Europe  for 
gold.  But  the  bills  of  exchange  drawn  on  them  were  sold 
in  New  York  for  greenbacks.  Take  wheat,  for  example, 
of  which  there  was  a  large  export  in  all  those  years.  The 
New  York  broker  or  banker  in  buying  these  bills  was  obliged 
to  make  the  conversion  from  greenbacks  to  gold.  He  had  to 
estimate  as  well  as  he  could  what  the  value  of  greenbacks 
would  be  when  the  gold-bill  became  payable  in  London. 
In  other  words,  he  had  to  speculate  in  greenbacks,  because 
he  had  to  take  the  risk  of  their  declining  or  advancing 
value  for  an  interval  of  time,  say,  one  month.  He  would 
not  take  this  risk  without  virtually  making  a  charge  suffi- 
cient in  his  judgment  to  cover  it,  and  leave  him  a  good 
profit  in  any  case.  This  charge  came  out  of  the  price  of 
the  wheat  ultimately  paid  to  the  growers  thereof.  The 
bill  of  exchange  was  sold  in  New  York  or  Chicago  in 
order  to  get  present  pay  for  the  farmers  who  furnished  the 
wheat,  and  present  profit  for  the  commission-merchants  or 


478  PRINCIPLES   OF   POLITICAL  ECONOMY. 

middlemen.  But  the  bill  brought  less  greenbacks  than 
the  quoted  premium  on  gold  would  warrant  for  that  day, 
on  account  of  the  risk,  the  uncertainty,  the  speculation. 
Therefore,  less  went  to  the  farmers  for  their  wheat  per 
bushel  or  centner.  The  masses  of  the  people  lose  the  im- 
mense losses  of  that  depreciated  money.  And  during  these 
very  years  also  the  Government  put  customs-taxes  to  a 
then  unheard-of  height  on  imports  from  abroad,  not  pri- 
marily for  the  sake  of  the  revenue  to  come  from  the  taxes, 
but  chiefly  with  a  view  to  keep  certain  foreign  goods  out 
of  the  country  altogether,  in  order  that  some  citizens  might 
be  able  to  sell  their  own  product  to  the  rest  at  artificially 
enhanced  prices.  Thus  the  natural  market  abroad  for 
wheat  and  pork  and  petroleum  and  other  provisions  was 
enormously  lessened  by  the  prohibition  of  imports,  —  a 
market  for  products  is  products  in  market,  —  at  the  same 
moment  when  the  actual  prices  for  products  exported  were 
still  further  diminished  by  the  action  of  depreciated  money 
on  the  par  of  commercial  exchange. 

Our  neighboring  Republic  of  Mexico  has  had  for  a  long 
time  the  so-called  bi-metallic  standard  of  Money,  the  same 
as  the  United  States  have  had.1  When  the  great  fall  of 
silver  in  gold  took  place  in  the  London  market  as  indicated 
above,  gold  was  rapidly  exported  from  Mexico,  and  soon 
disappeared  from  circulation,  in  accordance  with  Gresham's 
Law.  For  many  years  now  the  simple  silver  standard  has 
prevailed  in  Mexico.  Its  entire  working  in  foreign  trade 
through  the  "  exchanges "  has  been  sufficiently  demon- 
strated ;  and  as  there  is  more  than  a  possibility,  more  even 
than  a  bare  probability,  that  the  United  States  under  the 
law  of  1890,  and  other  and  earlier  extremely  complicated 
laws  of  Money,  may  drop  from  bi-metallism  to  silver  mono- 
metallism in  the  near  future,  in  the  way  of  premonition 

1  See  an  excellent  Essay  on  Mexican  Finance  by  M.  L.  Scudder,  Jr. 


FOREIGN   TRADE.  479 

and  warning  to  our  own  people  we  may  fitly  close  our 
discussion  of  foreign  "  Exchanges  "  by  briefly  stating  what 
of  hazard  and  disaster  under  the  silver  standard  is  now 
going  forward  among  our  neighbors  to  the  southward. 

The  effect  of  estimating  Mexican  transactions  in  silver 
money,  while  all  the  nations  with  which  they  trade  esti- 
mate theirs  in  gold,  is  seen  in  an  artificial  enhancement 
of  prices  to  the  Mexicans  on  all  their  imports,  and  an  arti- 
ficial depression  of  prices  to  them  on  their  exports.  Look 
first  at  imports.  There  is  of  course  a  current  discount  on 
Mexican  silver  as  compared  with  the  gold  in  which  the 
imported  goods  are  bought.  This  discount  is  now  over 
20%  throughout  the  commercial  world,  the  London  price 
of  silver  in  gold  giving  the  key  to  that  song.  But  this  is 
not  all  by  a-ny  means ;  the  discount  is  variable  from  day  to 
day  and  from  month  to  month;  in  Changing  his  gold  prices 
present  into  silver  prices  future,  the  Mexican  importers 
must  insure  themselves.  This  necessitates  a  speculation 
in  the  future  of  silver.  What  the  risk  may  be  will  depend 
somewhat  on  the  activity  of  the  silver  market :  if  silver  be 
rapidly  fluctuating  in  price,  the  importer  will  add  more  to 
his  silver  prices  additional  to  the  current  premium  on 
gold,  than  if  silver  be  comparatively  stable ;  but  in  all 
cases  he  will  add  enough  to  cover  all  prospective  risks.  It 
is  quite  likely  that  five  per  centum  is  added  on  the  average 
to  wholesale  prices  by  Mexican  importers  on  this  ground 
alone,  which  addition  with  all  the  usual  increments  must 
be  borne  by  retail  and  ultimate  prices. 

Now  look  at  Mexican  exports.  The  larger  part  in  value 
of  these  exports  is  silver  in  some  form,  mostly  in  the  form 
of  silver  dollars.  But  these  silver  dollars  are  merchandise 
in  London,  and  quite  variable  in  price  there,  as  has  already 
been  shown ;  and  bills  of  exchange  drawn  on  this  silver  in 
any  form,  and  sold  in  Mexico  to  parties  remitting  gold 


480 


PRINCIPLES    OF    POLITICAL   ECONOMY. 


values  to  London,  are  subject  to  constant  depression  on 
account  of  the  uncertainty  as  to  the  value  of  silver  in  gold 
when  the  bills  reach  London.  It  follows  from  this,  that 
the  use  of  the  silver  standard  in  Mexico  actually  depresses 
the  value  of  silver  there.  By  means  of  the  "  exchanges  " 
both  ways,  silver  tends  to  be  still  further  depreciated  in 
comparison  with  gold,  retail  prices  of  all  importables 
enhanced  in  silver,  and  the  chief  exportable  (silver)  de- 
pressed in  value  all  the  while !  Truly,  the  Mexicans  are 
between  the  upper  and  nether  millstones.  Poor  Money 
never  pays. 

In  confirmation  of  this  fact  that  Mexico  has  riot  lifted 
the  relative  value  of  silver  by  making  it  the  sole  Measure 
of  Value,  we  have  the  corresponding  fact  that  the  hercu- 
lean efforts  of  the  United  States  since  1878  to  advance  the 
value  of  silver  to  a  parity  with  that  of  gold  in  the  legal 
ratio  of  1 : 15.98,  have  issued  in  the  constant  relative 
decline  of  silver  here ;  and,  what  is  more  surprising,  in  an 
almost  constant  increase  of  the  yearly  production  of  silver 
here.  The  following  table  tells  the  whole  instructive 
story :  the  figures  are  official :  commercial  "  fine  ounces  " 
are  .915  of  technically  "  fine  "  silver. 


Year. 

Production 
(fine  ounces). 

Average 
Price. 

1 
Year. 

Production 
(fine  ounces). 

Average 
Price. 

1878 

34,900,000 

$1.15 

1884 

37,800,000 

$1.11 

1870 

31,550,000 

1.12 

1885 

39,910,000 

1.06 

1880 

30,320,000 

1.14 

1880 

39,440,000 

.99 

1881 

33,260,000 

1.13 

1887 

41,260,000 

.97 

1882 

30,200,000 

1.13 

1888 

45,780,000 

.93 

1883 

35,730,000 

1.11 

These  Seven,  then,  are  the  essential  Principles  of  For- 
eign Trade,  brought  out,  it  is  hoped,  as  clearly  and  consec- 
utively as  the  relative  and  complicated  nature  of  the 


FOREIGN   TRADE.  481 

transactions  will  allow ;  in  the  light  of  these  Principles  it 
is  very  clear,  that  Foreign  Trade  is  just  as  legitimate  as, 
and  may  be  more  profitable  than,  Domestic  Trade  ;  that  it 
rests  on  the  same  ultimate  and  unchangeable  grounds  in 
the  constitution  of  Man,  and  in  the  Providential  arrange- 
ments of  Nature ;  that  the  Profit  of  it  is  mutual  to  both 
parties,  or  it  would  never  come  into  being,  or,  coming  into 
being,  would  cease  of  itself ;  that  to  prohibit  it,  or  restrict 
it,  otherwise  than  in  the  interest  of  Morals,  Health,  or 
Revenue,  must  find  its  justification,  if  any  at  all,  wholly 
outside  the  pale  of  Political  Economy ;  and  that  for  any 
Government  to  say  to  its  citizens  (of  whom  Government 
itself  is  only  a  Committee),  who  may  wish  to  render  com- 
mercial services  to  foreigners  in  order  to  receive  back 
similar  services  in  return,  that  such  services  shall  neither 
be  rendered  nor  received,  is  not  only  to  destroy  a  Gain  to 
both  parties,  but  also  to  interfere  losingly  with  a  natural 
and  inalienable  Right  belonging  to  both. 

If  the  reader  pleases,  we  will  turn  now,  in  the  second 
place,  to  the  METHODS  AND  MOTIVES  IN  VOGUE  TO  RE- 
STRICT AND  PROHIBIT  FOREIGN  TRADE.  The  instrument 
for  this  purpose  is  called  a  Tariff.  The  origin  of  the  word 
Tariff,  its  nature  and  kinds,  will  throw  much  light  upon 
what  has  been  a  vexed  question,  but  is  one  easily  solvable, 
and  indeed  long  ago  resolved. 

1.  Origin.  —  When  the  Moors  from  Africa  conquered 
Spain  in  the  year  of  our  Lord  711,  they  fortified  the  south- 
ernmost point  of  the  peninsula  where  it  juts  down  into  the 
Straits  of  Gibraltar,  and  by  means  of  their  castle  and  town, 
called  in  their  Barbary  language  Tarifa,  compelled  all 
vessels  passing  through  the  Straits  to  stop  and  to  pay  to 
these  Moorish  lords  of  the  castle  a  certain  part  (determined 
by  themselves)  of  the  value  of  the  cargoes.  This  pay- 
ment appears  to  have  been  blackmail  pure  and  simple  ;  it 


482  PRINCIPLES   OF   POLITICAL  ECONOMY. 

was  certainly  extorted  by  force ;  and  whether  there  were 
any  pretence  of  a  return-service  in  the  form  of  promised 
exemption  from  further  pillage  or  not,  that  made  no  real 
difference  in  the  nature  of  the  transaction.  Eleven  cen- 
turies later,  the  United  States  demonstrated  what  they 
thought  about  similar  extortions  on  American  commerce 
practised  in  the  same  waters  by  the  descendants  of  these 
same  Moors,  by  despatching  Commodore  Decatur  with  a 
strong  fleet  to  Algiers  and  Tunis  and  Tripoli ;  to  which 
piratical  states  they  had  already  paid  in  twenty-five  years 
two  millions  of  dollars  in  "  tribute  "  or  "  presents "  for 
exemptions  of  their  Mediterranean  commerce  from  plun- 
der; who  captured  the  pirate  ships  and  compelled  the 
terrified  Dey  of  Algiers  (and  the  rest)  to  renounce  all 
claim  thereafter  to  American  "  tribute  "  or  "  presents  "  of 
ajry  kind.  The  word  Tarifa,  accordingly,  in  English  and 
other  modern  languages,  a  word  which  seems  to  be  very 
dear  to  some  men's  hearts,  does  not  appear  to  have  had  a 
very  respectable  origin,  though  that  is  not  sufficient  of 
itself  to  condemn  the  thing  described  by  the  word.  That 
will  depend  upon  its  nature  and  purposes. 

2.  Its  nature.  —  There  never  was  one  particle  of  doubt 
on  the  part  of  those  compelled  to  pay  the  Moorish  demands 
at  Tarifa,  or  on  the  part  of  the  United  States  compelled 
to  pay  "  tribute  "  to  the  Algerines  for  a  quarter  of  a  cen- 
tury, about  the  nature  of  the  transaction.  The  sign  at 
Tarifa  was  minus,  and  not  plus.  To  the  credit  of  those 
pirates  let  it  be  said,  that  they  never  pretended  to  take 
what  they  took  for  the  benefit  of  those  from  whom  they 
took  it.  They  took  it  for  their  own  benefit.  The  action 
was  abominable,  but  it  was  aboveboard.  There  was  no 
deceit  and  no  pretence  about  it.  Both  parties  knew  per- 
fectly what  was  going  on.  What  was  delivered  was  just 
so  much  out  from  what  would  otherwise  have  been  the 


FOREIGN  TRADE.  483 

gains  of  the  voyage.  And  the  truth  is,  the  thing,  tariff,  is 
always  true  to  the  origin  of  the  word,  tariff,  so  far  as  this, 
that  a  tariff  always  takes,  and  never  gives.  The  only 
phrase  a  tariff  speaks,  or  can  speak,  is,  Thou  shalt  pay ! 
There  is  lying  open  on  the  table  of  the  writer  at  this  mo- 
ment a  stout  volume  of  417  pages,  printed,  with  nearly 
as  many  more  interleaved,  entitled  Tariff  Compilation, 
published  by  the  United  States  Senate  in  1884,  contain- 
ing every  item  of  all  the  tariffs  passed  by  Congress  from 
1789  to  the  present  time.  One  may  read  this  volume 
from  beginning  to  the  end,  or  he  may  read  it  from  the  end 
backwards  to  the  beginning,  or  he  may  begin  in  the  middle 
and  read  both  ways,  and  all  he  will  find  between  the 
covers  is  a  series  of  Demands  made  upon  somebody  to 
pay  something.  These  demands,  of  course,  are  made 
upon,  and  realized  from,  the  citizens  of  the  United  States, 
who  are  the  only  people  under  the  authority  and  juris- 
diction of  the  Congress.  A  tariff,  then,  may  be  correctly 
defined  as  a  body  of  takings  or  taxings  levied  upon  the  people 
of  any  country  by  their  own  government  on  their  exchanges 
with  foreigners.  How  anybody  can  intelligently  suppose 
that  a  body  of  taxes,  which  their  own  countrymen  will 
have  to  pay,  can  be  so  cunningly  adjusted  as  to  become  to 
them  a  positively  productive  agent,  a  blessing  and  enrich- 
ment to  the  payers,  a  spur  to  the  progress  of  their  Society, 
they  may  be  properly  called  upon  to  explain  who  pretend 
to  believe  such  an  absurdity  in  the  nature  of  things. 

3.  Its  kinds.  —  There  are  two  kinds  of  Tariffs  under  our 
general  definition,  very  diverse  from  each  other  in  their 
respective  purposes,  principles,  incidence,  and  results. 

(1)  There  is  a  tariff  for  Revenue.  The  sole  purpose 
of  a  revenue  tariff  as  such  is  to  get  money  by  this  mode  of 
indirect  taxation  out  of  the  pockets  of  the  People  for  the 
coffers  of  the  Government,  in  order  to  be  then  expended, 


484  PRINCIPLES   OF   POLITICAL   ECONOMY. 

governmentally,  for  the  general  benefit  of  those  who  have 
paid  the  money  in  for  that  single  end.  The  underlying 
thought  of  this  kind  of  tariff,  a  tariff  for  revenue  only,  is, 
that  the  Government  itself  shall  get  all  the  money  which 
the  people  are  obliged  to  pay  under  these  taxes,  except  the 
bare  cost  of  collecting  them  ;  that  only  such  taxes  shall  be 
levied  at  all  as  will  come  bodily  and  readily  into  the  general 
Treasury  for  public  uses  ;  and  no  intelligent  and  justice- 
loving  people  will  long  tolerate  tariff-taxes  laid  with  any 
other  intent  than  the  economical  support  of  their  govern- 
ment, or  laid  in  any  other  way  than  shall  bring  into  the 
Treasury  all  that  is  taken  out  of  the  People.  A  Revenue 
Tariff,  therefore,  may  be  properly  defined  as  a  schedule  of 
taxes  levied  on  certain  imported  goods  with  an  eye  only  to 
just  and  general  taxation. 

There  are  three  vital  principles  on  which  a  revenue  tariff 
as  such  must  always  be  levied,  (a)  As  the  sole  object  is 
to  get  money  for  the  national  treasury,  and  as  money  can 
only  be  gotten  as  the  foreign  goods  taxed  are  allowed  to 
come  in,  such  taxes  must  be  levied  at  a  low  rate  on  each 
article  taxed,  so  as  not  to  interfere  essentially  with  the 
bringing  in  of  that  class  of  goods  with  a  profit  to  the  im- 
porters, and  not  at  all  to  encourage  the  smuggling  of  them 
in.  (b)  A  varied  experience  of  all  the  commercial  nations 
has  shown,  that  it  is  not  needful  in  order  to  derive  a  large 
and  growing  revenue  to  lay  even  low  rates  on  all  goods 
imported,  but  only  on  certain  classes  of  them,  so  as  to 
burden  at  as  few  points  as  possible  the  successful  ongoing 
of  international  exchanges ;  since  the  prosperity  ever  in- 
duced by  commercial  freedom  enables  a  country  to  import 
and  to  pay  for  in  its  own  quickened  products  vast  quanti- 
ties of  the  articles  subjected  to  the  tax,  so  that  large  rev- 
enues come  from  low  rates  levied  at  few  points.  Here  we 
lav  bare  the  ground  of  a  great  income  in  the  exemption 


FOREIGN    TKADE.  485 

of  the  bulk  of  imports  from  any  tax  at  all.  (c)  Custom- 
taxes  should  be  laid  wholly  or  at  least  mainly  on  articles 
procured  from  abroad,  and  not  also  produced  at  home  ; 
for  otherwise  the  incidence  of  the  tax  on  the  portion  im- 
ported will  necessarily  raise  the  price  also  of  that  portion 
made  or  grown  at  home  ;  and  thus  the  people  will  pay  more 
money  in  consequence  of  the  tax  than  the  Government 
gets  from  the  tax  in  revenue.  Three  points,  then,  in  a  rev- 
enue tariff,  namely,  low  duties  on  few  articles,  and  these 
wholly  foreign. 

The  best  modern  example  of  a  purely  revenue  tariff  is 
that  of  Great  Britain  since  1860.  All  duties  are  on  one  or 
other  of  the  following  sixteen  items,  namely,  Beer,  Cards, 
Chiccory,  Chocolate,  Cocoa,  Coffee,  Fruit,  Malt,  Pickles, 
Plate,  Spirits,  Spruce,  Tea,  Tobacco,  Vinegar,  and  Wine. 
Of  these,  Spruce  yielded  no  revenue  in  1880;  Cards,  Malt, 
Pickles,  and  Vinegar,  yielded  in  the  aggregate  that  year 
only  £1.491 ;  leaving  the  other  eleven  items  to  furnish 
practically  all  the  customs  revenue  ;  but  of  these  Coffee 
and  its  three  substitutes  with  Beer  and  Plate,  furnished 
only  £337.258,  so  that,  the  remaining  five  articles  yielded 
£18.915.489,  or  98%  of  the  whole  income  in  1880.  In 
other  words,  Fruit,  Spirits,  Tea,  Tobacco,  and  Wine, 
brought  in  all  but  2%  of  the  customs-taxes  of  Great 
Britain  in  1880.  In  1890,  the  duties  on  certain  Wines 
and  Spirits  having  been  lifted,  there  was  a  large  surplus  of 
revenue  over  the  Estimates,  which  has  just  been  devoted 
to  the  enlargement  of  the  Navy.  Every  other  European 
commercial  country  had  a  deficit  that  year  as  compared 
with  its  Estimates  of  the  year  preceding.  The  figures  are 
not  now  at  hand  for  an  exact  statement,  but  there  can  be 
little  reasonable  doubt  that  the  "  Five  Articles  "  rendered 
at  least  98-1- %  of  the  tariff-taxes  of  England  last  year.  If 
there  be  also  some  domestic  production  of  any  article  taxed 


486  PRINCIPLES    OF    POLITICAL   ECONOMY. 

by  the  British  tariff,  a  corresponding  excise-tax  on  that 
part  produced  at  home,  which  part  would  otherwise  be 
raised  in  price  by  the  tariff-tax  to  no  advantage  of  the 
Revenue,  enables  that  Government  to  get  easily  all  that 
the  people  are  made  to  pay  in  consequence  of  the  tariff-tax 
on  the  imported  part. 

(2)  There  is  a  tariff  under  Protectionism  so-called.  The 
ruling  aim  in  this  second  kind  of  tariff  is  not  at  all  to 
obtain  income  for  Government  in  order  to  promote  the 
general  good,  but  on  the  contrary  by  means  of  heavy  taxes 
on  foreign  articles  to  raise  the  prices  of  corresponding 
domestic  ones  for  the  exclusive  benefit  of  a  few  producers 
of  these  home  goods  at  the  expense  of  all  home  buyers  of 
them.  If  these  special  tariff-taxes  be  so  high  and  compli- 
cated as  to  keep  out  altogether  the  foreign  articles,  and  so 
the  Treasury  realize  nothing  at  all  from  the  taxes  on  them, 
so  much  the  more  "  protectionist "  do  they  become,  and 
so  much  the  better  pleased  are  the  special  domestic  pro- 
ducers with  the  entire  monopoly  of  the  home  market  at 
their  own  prices.  Such  taxes  are  prohibitory  and  protec- 
tionist at  the  same  time.  Prohibition  is  the  perfection  of 
Protectionism.  A  Protectionist  Tariff,  accordingly,  may 
be  justly  defined  as  a  body  of  taxes  laid  on  specified  imported 
goods  with  a  single  eye  to  raise  thereby  the  prices  of  certain 
home  commodities. 

The  vital  points  of  a  protectionist  tariff  are  also  three, 
but  these  are  the  exact  opposites  and  antipodes  of  the 
three  points  of  a  revenue  tariff,  so  that  it  is  self-contradic- 
tory and  impossible  to  combine  in  one  tariff-bill  the  two 
sets  of  contrary  elements.  A  revenue  tariff  with  incidental 
protectionism  is  a  solecism,  (a)  If  a  tariff-rate  is  to  be 
protectionist  in  character,  that  is,  competent  to  raise  the 
price  of  home  products,  it  must  be  high,  so  as  either  to 
exclude  altogether  the  corresponding  foreign  products,  in 


FOREIGN  TRADE.  487 

which  case  there  is  no  revenue  at  all,  or  else  to  make  their 
price  by  means  of  the  duty  added  reach  the  point  at  which 
the  home  producers  plan  to  sell  their  own,  in  which  case 
there  will  be  very  little  revenue.  For  instance,  when  the 
Bessemer  steel  companies  asked  in  1870  for  two  cents  a 
pound  tariff-tax  on  foreign  steel  rails,  they  called  it  in  terms 
in  their  "  confidential "  statement  to  the  Ways  and  Means 
" exceptional  protection"  and  admitted  in  so  many  words 
that  they  expected  to  supply  the  home  market  entirely, 
and  so  the  Government  would  get  nothing  in  revenue  and 
the  people  be  compelled  to  pay  $44.80  extra  for  their  home 
steel  rails  per  ton.  It  is  a  little  bit  of  comfort  to  think, 
that  they  only  obtained  $28  per  ton,  or  1 J  cents  per  pound, 
which  was  not  quite  prohibitory,  so  that  the  Government 
got  a  little  revenue  on  steel  rails,  and  the  people  paid  for 
some  years  only  about  double  for  their  rails  what  they  were 
worth  in  a  free  market !  To  reach  its  end  a  protectionist 
tariff-tax  must  be  high  of  necessity. 

(b)  No  system  of  protectionist  tariff-taxes  can  be  en- 
tered upon  or  continued  in  any  country  except  by  means 
of  many  persons  who  all  alike  want  their  special  products 
artificially  lifted  in  price  by  legislation,  and  who  are 
obliged  to  combine  in  order  to  get  and  keep  what  they 
want,  so  that  protectionist  taxes  on  a  few  things  only 
were  rarely  or  never  found  in  a  tariff;  so  contrary  are 
such  taxes  to  the  common  sense  and  common  interests  of 
man,  that  only  strong  combinations  of  many  special  inter- 
ests can  begin  or  maintain  them,  whence  there  must  be 
many  taxes  if  any  under  this  strongly  selfish  scheme  ;  and 
by  an  actual  count  of  them  by  the  writer  in  1868  there 
were  found  to  be  2317  distinct  rates  of  tax  assessed  on 
different  foreign  articles  in  the  Tariff  of  the  United  States, 
which  was  strikingly  in  contrast  with  the  Revenue  Tariff 
of  Britain  in  point  of  the  number  of  things  taxed.  So 


488  PRINCIPLES   OF   POLITICAL   ECONOMY. 

needful  is  log-rolling  to  the  maintenance  of  protectionism, 
that  the  passage  of  the  "  knit-goods  bill "  in  the  summer 
of  1882,  for  example,  was  contingent  on  the  contempora- 
neous passage  of  the  famous  "  River  and  Harbor  bill "  of 
that  year. 

(c)  While  Revenue  Taxes  select  by  preference  things 
wholly  imported,  Protectionist  Taxes  are  placed  of  course 
on  such  foreign  goods  as  are  also  and  especially  made  or 
grown  at  home,  otherwise  their  plain  and  sole  purpose 
would  be  thwarted,  wrhich  completes  the  contrast  between 
the  two  kinds  of  tariffs.  For  illustration,  Tea  and  Coffee 
are  the  best  things  possible  to  tax  in  a  tariff  for  revenue, 
because  (1)  they  are  in  universal  consumption,  and  (2) 
they  are  wholly  imported,  and  taxes  upon  them  do  not 
raise  the  price  of  anything  else,  and  so  the  Government 
gets  all  that  the  people  pay  under  them ;  for  this  very  rea- 
son the  taxes  upon  Tea  and  Coffee,  which  had  yielded  for 
years  some  $20,000,000  of  revenue  yearly,  were  thrown  off 
in  1872  under  protectionist  leadership,  by  the  deceptive 
cry  of  "  a  free  breakfast  table"  in  the  subtle  interest  of 
commercial  bondage ;  seeking  to  give  the  impression  on 
the  one  hand  that  everything  on  the  breakfast  table  was 
to  be  free,  whereas  nothing  on  it  or  around  was  to  be  free 
except  the  two  beverages  mentioned,  and  on  the  other 
hand  that  the  removal  of  these  two  taxes  was  a  great  boon 
to  the  people,  whereas  the  motive  for  the  removal  of  these 
was  to  continue  on  the  people  burdens  tenfold  heavier. 
Eighteen  years  have  rolled  away  since  then,  and  Tea  and 
Coffee  are  still  upon  the  free  list ;  the  incompatibility  of 
the  two  kinds  of  tariff-taxes  is  demonstrated  in  the  fact, 
that  there  has  not  been  for  years  a  single  tax  primarily  for 
revenue  in  the  United  States  tariff,1  the  opposite  protec- 
tionist idea  having  logically  wrought  itself  out  there ;  and 
i  Public  Statement  of  Professor  Taussig  of  Harvard  College. 


FOREIGN   TRADE.  489 

the  same  incompatibility  is  shown  in  the  British  tariff,  in 
which  there  has  been  no  protectionist  tax  since  1860. 
Each  aim  logically  carried  out  completely  excludes  the 
other  aim. 

The  best  and  worst  specimen  of  a  protectionist  tariff 
that  the  world  has  ever  seen,  has  been  in  operation  in  the 
United  States  for  thirty  years,  1861-1890.  Its  inner  his- 
tory is  not  yet  fully  known  by  the  public,  but  enough  is 
known  to  expose  the  motives  and  to  condemn  the  action 
of  all  those,  whether  constituents  or  congressmen,  who 
knowing  what  they  were  doing,  contributed  to  build  up 
gradually  that  mass  of  incongruities  and  iniquities,  under 
which  the  entire  agricultural  class  of  the  country  (nearly 
one-half  of  the  people)  has  become  impoverished,  by  much 
the  larger  part  of  the  farming  lands  of  the  Union  covered 
by  heavy  mortgages,  and  the  ocean-marine  of  a  naturally 
nautical  people  almost  totally  destroyed.  Attempts  more 
or  less  successful  have  been  made  at  various  times  and  at 
different  points  to  conceal  from  the  Public  the  impulses 
really  behind  the  provisions  of  this  tariff,  and  even  the 
amount  and  the  mode  of  the  incidence  of  its  taxes ;  many 
of  the  most  protectionist  taxes  have  been  complex,  com- 
bining upon  the  same  article  specific  and  advalorem  rates, 
as  for  instance,  upon  blankets  "  50  cents  per  pound  and 
35  ff0  advalorem"  so  that  it  was  difficult  or  rather  impossi- 
ble for  the  common  reader  or  buyer  to  ascertain  how  much 
the  tariff-tax  really  was ;  much  of  the  language  of  the 
tariff-bills  has  been  to  the  last  degree  involved  and  uncer- 
tain, often  leading  to  perplexing  disputes  and  costly  litiga- 
tions, and  sometimes  covering  up  a  half-hidden  purpose ; 
importers  have  been  bribed,  as  it  were,  in  cases  of  doubtful 
legality,  to  pay  the  maximum  rates  demanded,  by  the  pros- 
pect and  promise  that  the  extra  sums  if  ultimately  found 
by  the  courts  illegal  should  be  repaid  bodily  to  them  and 


490  PKINCIPLES   OF   POLITICAL   ECONOMY. 

not  to  the  people  who  in  the  mean  time  had  bought  and 
paid  for  the  goods  thus  enormously  enhanced  in  price, 
and  millions  of  the  people's  money  have  gone  back  in  that 
way  to  importers  and  to  spies  and  informers;  a  careless 
wording  in  tariff-descriptions  has  again  and  again  covered 
goods  not  designed  to  be  touched,  as  the  lastings  and  rub- 
ber webbings  of  the  shoemakers  to  the  consternation  of 
that  great  interest,  which  asked  for  no  protectionist  privi- 
lege for  itself,  but  wanted  its  raw  materials  at  their  natural 
price ;  and  the  iron  industry  of  Pennsylvania  was  bitterly 
angry  at  Secretary  Sherman,  who  construed  a  line  of  the 
tariff  relating  to  cotton  ties  used  at  the  South  more  favora- 
bly to  the  planters  than  to  the  iron-workers,  although  the 
latter  were  strongly  privileged  at  every  point  of  the  tariff 
(even  at  this)  in  the  teeth  of  the  interests  of  the  con- 
sumers of  iron,  and  the  later  honorable  ambition  of  the 
Secretary  to  become  a  candidate  for  the  Presidency  of  the 
United  States  was  largely  thwarted  in  consequence  by 
the  hostility  of  these  miserable  and  revengeful  monopo- 
lists. 

There  were  fifty  descriptions  of  iron  and  steel  taxed  by 
the  tariff  in  1879,  and  the  average  rate  of  tax  on  these 
at  that  time  was  77%  advalorem,  and  this  was  about  the 
average  rate  for  the  thirty  years  under  the  consideration. 
On  special  articles  of  prime  necessity  and  universal  con- 
sumption, as  steel  rails,  the  tax  varied  under  the  rate  of 
$28  per  ton  put  on  in  1870  from  85%  to  100%  advalorem; 
and  the  purpose  of  this  particular  tax  was  plainly  seen  in 
an  average  price  of  domestic  steel  rails  in  this  country 
$24.44  a  ton  higher  than  in  England  for  better  rails  under 
a  longer  guarantee  for  the  eleven  years,  1870-80 ;  in  other 
words,  87%  of  the  tax  paid  on  the  smaller  and  better  part 
imported  was  added  to  the  average  price  of  the  larger  and 
worser  part  produced  at  home  during  those  eleven  years. 


FOREIGN   TRADE.  491 

That  the  English  rails  were  better  and  even  regarded  as 
cheaper  under  their  guarantee  with  the  $28  a  ton  added 
to  their  price,  is  proven  by  the  fact  that  the  N.  Y0  Central 
railroad  company  relaid  their  tracks  with  the  English  rails, 
and  were  putting  them  down  in  Detroit  in  plain  sight  of 
simultaneous  track-laying  across  the  river  in  Canada,  where 
the  same  kind  of  English  rails  were  costing  $28  a  ton  less. 
Every  passenger  and  ton  of  freight  carried  by  steel-track 
roads  in  the  United  States  in  this  interval  contributed  his 
and  its  share  to  make  up  to  the  roads  this  extra  price  paid 
for  steel  rails.  In  1883  the  tariff-tax  on  steel  rails  was 
reduced  to  $17  per  ton.  That  this  enormous  artificial  price 
of  iron  and  steel  products  under  tariff-taxes  redounded 
wholly  to  the  profit  of  the  capitalists  concerned,  and  not  at 
all  to  the  benefit  of  the  laborers  concerned,  is  shown  by  the 
Census  of  1880,  which  gives  $393  as  the  average  pay  for 
that  year  of  the  persons  employed  in  the  iron  and  steel 
industries  of  the  country ;  and  the  late  Senator  Beck  of 
Kentucky  demonstrated  on  the  floor  of  the  Senate,  nemine 
contradicente,  that  only  8.8%  of  the  value  of  the  products 
of  the  Bessemer  steel  industry  in  1881  went  to  the  laborers 
employed  in  it,  while  66.9%  of  the  same  went  to  the  capi- 
talists as  profits.  Let  the  thoughtful  reader  remember  at 
this  point,  that  iron  and  steel  products  are  only  one  of  an 
indefinite  number  coddled  and  privileged  by  the  tariff  at 
the  expense  of  the  masses  of  consumers. 

It  is  impossible  to  tell  exactly  how  much  more  the  people 
of  the  United  States  were  compelled  to  pay  for  their  com- 
modities under  tariff-taxes,  whose  ground-thought  was  to 
compel  them  to  pay  more  and  the  more  the  better,  than  the 
Treasury  received  as  the  direct  product  of  these  taxes 
during  1861-90,  but  an  approximation  can  be  made  within 
the  truth  whose  results  are  fitted  to  startle  the  minds  of  all 
good  citizens.  For  convenience'  sake  only,  and  because  the 


492  PRINCIPLES    OF   POLITICAL   ECONOMY. 

official  figures  are  complete  for  the  shorter  period,  let  us 
take  for  comparison  the  twenty  years,  1863-82.  The 
annual  average  tariff-income  for  those  20  years  was  in 
round  numbers  $158,000,000,  but  the  ground-thought  of 
the  tariff-scheme  in  all  those  years  was  not  to  get  an 
income  for  Government,  but  factitious  prices  for  capitalists 
privileged  by  law;  and  during  the  last  half  of  the  time 
there  were  no  tariff-taxes  on  Tea  and  Coffee,  which  had 
been  before  the  principal  revenue  taxes.  If,  now,  we  may 
fairly  suppose,  that  for  each  one  foreign  article  paying  a 
tax  into  the  Treasury  there  were  four  domestic  articles 
raised  each  in  price  as  much  as  the  foreign  article  paid 
in  customs-tax,  then  it  follows,  that  the  People  paid  in 
each  of  those  20  years  under  customs  chiefly  protectionist, 
1632,000,000,  or  $12,640,000,000  in  all,  no  penny  of  which 
went  into  the  Treasury  of  the  United  States.  That  this 
supposition  of  4:1  is  wholly  reasonable,  appears  partly 
from  the  known  proportion  (officially  reported)  between 
Domestic  and  Imported  as  to  several  leading  articles,  for 
example,  of  steel  rails  in  1880  the  Domestic  was  20  times 
the  Imported,  and  the  People  paid  19  times  more  under 
the  tax  than  the  Treasury  got ;  and  on  woollen  blankets 
in  1881  the  Treasury  took  in  less  than  $2000,  while  the 
People  paid  in  the  extra  price  of  blankets  more  than  1000 
times  that  sum  that  year ;  and  on  iron  and  steel  goods  of 
all  kinds  the  average  tariff-taxes  were  about  11%  in  that 
interval  of  time  and  the  vast  bulk  of  the  iron  and  steel 
goods  consumed  was  boasted  to  be  of  domestic  production. 
Let  us  confirm  these  striking  results  by  another  more 
than  reasonable  supposition  taken  from  the  opposite  quar- 
ter. The  census  of  1870  gave  $4,232,000,000  as  the  value 
of  home  manufactures  for  that  year,  which  we  may  fairly 
take  as  the  average  of  the  20  years  under  considera- 
tion; now,  if  we  throw  off  one-third  of  those  home 


FOREIGN   TRADE).  493 

products  as  not  affected  by  the  tariff  at  all,  and  reckon 
that  the  rest  were  only  raised  in  price  22%,  which  was 
only  one-half  of  the  average  rate  of  tax  on  dutiable  goods, 
—  the  average  rate  on  these  was  officially  pronounced  in 
1880  at  44%,  —  then  almost  precisely  the  same  results  will 
follow  as  before :  two-thirds  of  $4,232,000,000  is  $2,880,- 
000,000,  and  22%  on  that  sum  is  $633,600,000.  An  ac- 
knowledged statistical  expert  of  national  reputation,  Mr. 
J.  S.  Moore,  calculated  from  data  quite  diverse  from  our 
own,  that  the  People  paid  $1,000,000,000  in  the  one  year, 
1882,  extra  to  the  sum  reaching  the  Treasury  that  year, 
under  protectionist  tariff-taxes.  We  see,  then,  clearly  the 
methods,  by  which  Protectionism  reaches  its  ends,  and  we 
cannot  but  conclude,  that  these  methods  issue  in  mon- 
strously unjust  burdens  on  the  masses  of  the  People. 

It  remains,  under  this  second  general  head,  to  examine 
the  motives  of  those  men,  who  have  gotten  the  protectionist 
tariff-taxes  put  upon  the  different  classes  of  imported  goods 
in  this  country.  Fortunately  we  have  data  of  unquestion- 
able authority,  covering  the  entire  first  century  of  our 
national  existence,  which  prove  these  two  propositions : 
first,  that  no  protectionist  tax  has  ever  been  PUT  ON  by  our 
Congress  from  the  first  day  until  this  day  except  at  the 
instance  and  under  the  pressure  of  the  very  men  personally 
and  pecuniarily  interested  to  secure  thereby  an  artificial  rise 
of  price  for  their  own  domestic  wares  ;  and  second,  that  these 
very  men  have  been  almost,  if  not  quite,  as  active  and  deter- 
mined TO  KEEP  OFF  protectionist  taxes  on  other  goods  used 
by  them  in  their  processes  of  production,  ivhether  raw  mate- 
rial, machinery,  or  accessories.  These  two  propositions, 
taken  together,  demonstrate  beyond  a  cavil  the  motives  of 
the  protectionists  as  a  class.  Of  course,  they  have  had 
their  dupes  and  tools.  Out  of  their  own  mouths  and  out 
of  their  own  actions  are  they  to  be  judged.  One  hundred 


494  PRINCIPLES   OF   POLITICAL  ECONOMY. 

years  is  long  enough  of  time  in  order  to  display  perfectly 
the  motives  of  a  prominent  and  persistent  class  of  men, 
under  that  Government  of  the  world,  whose  key-note  is 
Exposure,  and  under  that  maxim  of  the  world,  Actions 
speak  louder  than  words. 

Thomas  H.  Benton,  a  United  States  Senator  from  Mis- 
souri for  30  years,  1820-50,  himself  in  all  that  time  a 
prominent  leader  and  debater,  and  always  an  indefatigable 
investigator,  published  an  Abridgment  of  the  Debates  in 
Congress  from  1789  to  1856  in  15  large  volumes.  Each 
important  tariff  Debate  for  the  first  70  years  of  our  national 
history  is  distinctly  brought  out  in  these  volumes,  and  the 
impulses  and  motives  behind  each  leading  speaker  may  be 
discerned  as  clear  as  day.  The  present  writer  has  been 
over  these  debates  with  great  care,  and  has  mastered  them 
in  their  substance  and  motives  on  both  sides ;  and  he  has 
been  besides  a  deeply  interested  reader  and  excerptor  of 
all  Congressional  tariff-debates  for  more  than  30  years 
just  past;  and  now  invites  his  present  readers  to  take  a 
cursory  glance  over  this  broad  field,  and  satisfy  themselves 
as  to  the  motives  personal  and  associate  of  the  protectionist 
debaters  from  the  first  to  the  present  time.  • 

Because  the  new  Constitution  prescribed  that  "  all  bills 
for  raising  revenue  shall  originate  in  the  House-  of  Repre- 
sentatives" the  main  debates  on  the  first  tariff-act  of  1789 
were  in  that  branch  of  the  national  Legislature.  Nothing 
could  be  simpler  or  sounder  than  the  basis  of  the  new 
tariff  as  proposed  by  Madison,  the  acknowledged  leader 
in  the  debates,  namely,  the  so-called  Revenue  System  of 
1783,  as  adopted  by  the  old  Congress,  and  ratified  by  all 
the  States  in  succession,  excepting  New  York.  That  was, 
small  specific  taxes  on  eight  articles,  namely,  Wines, 
Spirits,  Tea,  Coffee,  Cocoa,  Molasses,  Sugar,  and  Pepper. 
In  the  earlier  part  of  the  discussion  no  other  end  than 


FOREIGN   TRADE.  495 

revenue  was  mentioned  in  connection  with  the  taxes. 
Madison  said :  "  I  own  myself  the  friend  of  a  very  free 
system  of  commerce :  if  industry  and  labor  are  left  to  take 
their  own  course  they  will  generally  be  directed  to  those 
objects  which  are  most  productive,  and  that  in  a  manner 
more  certain  and  direct  than  the  wisdom  of  the  most  en- 
lightened legislature  could  point  out ;  nor  do  I  believe  that 
the  national  interest  is  more  promoted  by  such  legislative 
directions  than  the  interests  of  the  individuals  concerned" 
It  is  significant  of  after  times  that  the  first  word  in  this 
debate  respecting  any  other  word  than  revenue  through 
the  tariff-taxes  came  from  Pennsylvania ;  and  equally 
significant,  that  the  next  and  strongest  words  for  some- 
thing else  than  revenue  came  from  Massachusetts;  and 
more  significant  than  either  was  the  junction  of  the  two 
States  in  influence  and  votes  when  it  came  to  the  final 
adjustment  of  the  actual  tariff-rates.  Pennsylvania  had 
already  gotten  well  forward  in  the  manufacture  of  iron 
and  steel  products,  particularly  of  nails,  and  wanted  "  en- 
couragement" that  is,  protectionist  taxes  upon  the  foreign 
products  corresponding.  Said  Hartley  of  Pennsylvania: 
"  I  am  therefore  sorry  that  gentlemen  seem  to  fix  their  mind 
to  so  early  a  period  as  1783 ;  for  we  very  well  know  our 
circumstances  are  much  changed  since  that  time :  we  had 
then  but  few  manufactures  among  us,  and  the  vast  quantities 
of  goods  that  flowed  in  upon  us' from  Europe  at  the  conclu- 
sion of  the  war  rendered  those  few  almost  useless ;  since 
then  we  have  been  forced  by  necessity,  and  various  other 
causes,  to  increase  our  domestic  manufactures  to  such  a 
degree  as  to  be  able  to  furnish  some  in  sufficient  quantity 
to  answer  the  consumption  of  the  whole  Union,  while  others 
are  daily  groiving  into  importance.  Our  stock  of  materials 
is,  in  many  instances,  equal  to  the  greatest  demand,  and  our 
artisans  sufficient  to  work  them  up  even  for  exportation.  In 


496  PRINCIPLES   OF   POLITICAL  ECONOMY. 

these  cases,  I  take  it  to  be  the  policy  of  every  enlightened 
nation  to  give  their  manufactures  that  degree  of  encourage- 
ment necessary  to  perfect  them,  without  oppressing  other 
parts  of  the  community." 

Massachusetts  was  not  a  whit  behind  Pennsylvania  in 
asking  for  discriminations  in  her  own  favor  at  the  obvious 
expense  of  the  rest  of  the  country.  New  England  rum 
was  made  out  of  molasses,  and  Jamaica  rum  was  its  com- 
petitor in  public  favor;  distillers  in  the  neighborhood  of 
Boston  and  Salem  wanted  therefore  a  high  tax  on  Jamaica 
rum,  and  a  low  one  on  the  imported  molasses  used  in  the 
home  manufacture.  Madison  was  willing  to  discourage 
rum-making  and  rum-selling  both  in  the  interest  of  temper- 
ance, and  proposed  a  tax  of  eight  cents  a  gallon  on  molasses 
and  fifteen  cents  on  Jamaica  rum,  which  called  out  this  in- 
dignant burst  from  Goodhue  of  Massachusetts  :  "  Molasses 
is  a  raw  material,  essentially  requisite  for  the  well-being  of  a 
very  extensive  and  valuable  manufacture.  It  ought  likewise 
to  be  considered  a  necessary  of  life.  In  the  Eastern  States 
it  enters  into  the  diet  of  the  poorer  classes  of  people,  who 
are,  from  the  decay  of  trade  and  other  adventitious  circum- 
stances, totally  unable  to  bear  such  a  weight  as  a  tax  of  eight 
cents  would  be  upon  'them.  I  cannot  consent  to  allow  more 
than  two  cents.  Massachusetts  imports  from  30,000  to  40,000 
hogsheads  annually,  more  than  all  the  other  States  together. 
Fifteen  cents,  the  sum  laid  on  Jamaica  spirits,  is  about  one- 
third  part  of  its  value :  now  eight  cents  on  molasses  is  con- 
siderably more  :  the  former  is  an  article  of  luxury,  therefore 
that  duty  may  not  be  improper  ;  but  the  latter  cannot  be  said 
to  partake  of  that  quality  in  the  substance,  and  when  manu- 
factured into  rum  is  no  more  a  luxury  than  Jamaica  spirits?* 

The  Senate  in  the  First  Congress  sat  with  closed  doors, 
and  was  thus  more  open  than  the  House  to  the  influence 
of  interested  petitions  which  soon  began  to  pour  in  upon 


FOREIGN   TRADE.  497 

it,  asking  for  amendments  to  the  House  bill  in  the  line  of 
protectionism ;  and  through  such  amendments  the  Massa- 
chusetts and  Pennsylvania  members,  with  a  few  other 
members  similarly  inclined,  partially  carried  their  points 
into  the  first  Tariff.  The  tax  on  molasses  was  fixed  at  2^ 
cents  a  gallon,  and  on  Jamaica  rum  at  ten  cents  a  gallon ; 
nails  were  taxed  one  cent  per  pound  imported;  and  an 
accepted  Senate  amendment  classed  Hemp  and  Cotton 
together  as  two  products  of  the  soil  worth  "  encouraging," 
hemp  at  f  of  a  cent  per  pound  and  cotton  at  three  cents  a 
pound ;  yet  hemp  constantly  "  encouraged  "  to  this  day  at 
the  cost  of  ship  building  and  other  industries  has  never  risen 
to  the  rank  of  a  staple.  Coal  was  also  taxed  protection- 
istly,  at  the  instance  of  Virginia,  then  the  coal-producing 
State.  Note  the  three  universal  features  of  Protectionism 
in  the  original  application  of  it  to  the  United  States; 
(1)  the  purely  selfish  call  to  tax  one's  neighbor  in  order 
to  lift  the  price  of  one's  own  wares  (nails),  (2)  the  equally 
selfish  resistance  to  such  a  tax  as  falls  on  one's  raw  mate- 
rials (molasses),  and  (3)  the  final  log-rolling  among  those 
legally  privileged  at  different  points  (Massachusetts  and 
Pennsylvania  and  Virginia). 

Take  a  second  instance  of  the  same  general  point  from  our 
second  Tariff,  passed  in  1816.  Two  Massachusetts  young 
men,  Lowell  and  Jackson,  brothers-in-law,  had  started  a 
modern  cotton-mill  in  Waltham,  near  Boston,  in  1813,  and 
constructed  in  it,  with  the  help  of  an  ingenious  mechanic 
named  Moody,  a  power-loom ;  as  soon  as  the  war  with  Eng- 
land was  over,  and  Congress  in  consequence  began  to  talk 
about  a  new  Tariff,  Lowell  went  to  Washington,  and  by 
personal  influence  with  Mr.  Calhoun,  then  the  leading  man 
in  the  House,  with  Mr.  Lowndes  his  colleague  from  South 
Carolina,  who  afterwards  reported  the  new  bill,  and  with 
other  members  of  Congress,  contributed  largely  to  the  intro- 


498  PRINCIPLES    OF   POLITICAL   ECONOMY. 

duction  into  this  Tariff  of  protectionist  features  towards 
cottons.  Lowell  struck  strong  at  the  start.  He  repre- 
sented (doubtless  with  entire  honesty)  to  Calhoun  and 
Lowndes,  both  from  a  cotton-planting  State,  that  a  domes- 
tic market  for  raw  cotton  in  addition  to  the  foreign  market 
would  raise  the  price  of  that  agricultural  staple.  Both 
were  easily  convinced  that  such  would  be  the  case,  although 
both  found  ample  reasons  afterwards  for  altering  their 
opinion  in  that  regard.  Lowell,  the  "  cotton  city  "  on  the 
Merrimack,  founded  in  1821,  was  named  from  the  success- 
ful lobbyist  of  1816.  Lowndes  reported  a  tax  on  cottons 
of  33i%  advalorem,  with  a  proviso  that  all  cottons  should 
be  assumed  at  the  custom-house  to  have  cost  at  least  25  cents 
to  the  square  yard.  This  was  the  famous  principle  of  the 
"minimum,"  a  device  to  increase  the  protectionism  with- 
out seeming  to  do  so. 

The  debate  on  this  feature  of  the  bill  was  a  marvel  in 
many  ways.  The  penetrating  reader  will  not  be  at  a  loss 
for  the  reason  of  this.  John  Randolph  moved,  to  strike 
out  from  the  bill  the  proviso  for  the  cotton  minimum,  and 
argued  at  some  length  "  against  the  propriety  of  promoting 
the  manufacturing  establishments  to  the  extent  and  in  the 
manner  proposed  by  the  bill,  and  against  laying  up  8000 
tons  of  shipping  now  employed  in  the  East  India  trade,  and 
levying  an  immense  tax  on  one  portion  of  the  community  to 
put  money  into  the  pockets  of  another"  Calhoun  rejoined: 
"  Until  the  debate  assumed  this  new  form,  he  had  determined 
to  be  silent ;  participating,  as  he  largely  did,  in  that  general 
anxiety  which  is  felt,  after  so  long  and  laborious  a  session,  to 
return  to  the  bosom  of  our  families.  It  has  been  objected  to 
that  bill,  that  it  will  injure  our  marine,  and  consequently 
impair  our  naval  strength.  How  far  it  is  fairly  liable  to 
this  charge,  he  was  not  prepared  to  say.  He  hoped  and 
believed  it  would  not,  at  least  to  any  alarming  extent,  have 


FOREIGN   TRADE.  499 

that  effect  immediately  ;  and  he  firmly  believed  that  its  last- 
ing operation  would  be  highly  beneficial  to  our  commerce. 
The  trade  to  the  East  Indies  would  certainly  be  much 
affected ;  but  it  was  stated  in  debate  that  the  whole  of  that 
trade  employed  but  six  hundred  sailors.  The  cotton  and 
woollen  manufactures  are  not  to  be  introduced:  they  are 
already  introduced  to  a  great  extent ;  freeing  us  entirely 
from  the  hazards,  and  in  a  great  measure,  the  sacrifices 
experienced  in  giving  the  capital  of  the  country  a  new  direc- 
tion. The  restrictive  measures  and  the  war,  though  not 
intended  for  that  purpose,  have  by  the  necessary  operation  of 
things  turned  a  large  amount  of  capital  to  these  new  branches 
of  industry.  But  it  will  no  doubt  be  said,  if  they  are  so  far 
established,  and  if  the  situation  of  the  country  be  so  favor- 
able to  their  growth,  where  is  the  necessity  of  affording  them 
protection  f  It  is  to  put  them  beyond  the  reach  of  contin- 
gency:' 

Thus  Calhoun  goes  on,  making  the  greatest  mistake  of 
his  life  which  he  regretted  to  his  dying  day,  to  give 
plausible  reasons  for  his  insistence  and  his  vote,  but  he 
does  not  even  touch  upon  the  real  reason.  If  he  had 
detailed  his  conversations  with  Lowell,  it  would  have 
been  far  more  to  the  point.  His  motive,  like  that  of 
every  other  man  in  Congress  who  has  urged  protectionist 
schemes,  was  the  special  benefit  of  some  of  his  constitu- 
ents at  the  more  or  less  concealed  expense  of  their  coun- 
trymen. But,  as  always  happens  when  men  really  act 
from  unavowed  motives,  he  was  suspected  of  having  them  ; 
and  he  guarded  himself:  "He  was  no  manufacturer;  he 
was  not  from  that  portion  of  the  country  supposed  to  be 
peculiarly  interested.  Coming  as  he  did  from  the  South, 
and  having  in  common  with  his  immediate  constituents,  no 
interest  but  in  the  cultivation  of  the  soil,  in  selling  its  prod- 
ucts high,  and  buying  cheap  the  wants  and  conveniences  of 


500  PKINCIPLES   OF   POLITICAL  ECONOMY. 

life,  no  motives  could  be  attributed  to  him  but  such  as  were 
disinterested"  But  Randolph  still  charged,  that  the  dis- 
cussion showed  "a  strange  and  mysterious  connection" 
between  this  measure  and  the  National  Bank  bill  which 
had  just  passed.  This  was  a  loophole  of  escape  for  Cal- 
houn :  "  he  wished  merely  to  reply  to  the  insinuation  of  a 
mysterious  connection  between  this  bill  and  that  to  establish 
the  Bank.  He  denied  any  improper  or  unfair  understand- 
ing, and  could  challenge  the  House  tc  support  the  charge" 

A  beautiful  instance  of  the  confession,  which  all  protec- 
tionists make  in  action  Avhen  it  comes  to  the  pinch,  that 
a  rise  of  price  is  at  once  the  object  and  the  result  of  pro- 
tectionist tariff-taxes,  is  found  in  the  awkward  attempt 
of  Congress  to  relieve  indirectly  the  burnt-out  citizens  of 
Chicago  in  1871.  The  great  fire  occurred  in  October  of 
that  year.  In  the  winter  following  a  bit  of  legislation 
took  place  in  Congress  in  consequence,  which  is  too  in- 
structive to  be  passed  by  without  notice,  because  in  all 
the  parts  of  it  taken  together  we  have  in  epitome  the 
motives  and  the  processes  and  the  prompt  confessions  of 
Protectionism.  Contributions  were  taken  up  all  over  the 
country,  and  even  in  Europe,  for  the  relief  of  the  people 
of  Chicago.  As  Whittier  puts  it : 

"  From  East,  from  West,  from  South  and  North, 
The  messages  of  love  shot  forth, 
And,  underneath  the  severing  wave, 
The  world,  full-handed,  reached  to  save." 

But  cannot  Congress  do  something  to  help  rebuild  the 
ruined  city?  April  5, 1872,  President  Grant  set  his  signa- 
ture to  a  congressional  bill  enacted  to  last  one  year  only, 
and  for  the  express  benefit  of  Chicago  alone,  to  exempt  all 
building  materials  except  lumber  from  the  operation  of  tariff- 
taxes.  As  a  public  and  emphatic  confession  on  the  part  of 


FOREIGN  TRADE.  501 

Congress,  that  tariff-taxes  raise  the  prices  of  protectionist 
goods,  and  that  the  remission  of  such  taxes  lowers  the 
prices  of  such  goods  and  becomes  a  boon  to  the  buyers,  all 
this  is  refreshing  and  satisfactory ;  but  why  was  lumber, 
by  much  the  most  important  of  the  building  materials 
needed,  excepted  from  the  bounty  of  the  legislators  to  the 
unfortunates  of  Chicago  ?  The  bill  applied  to  Chicago 
only,  and  was  to  last  but  one  year  at  best !  The  bill  as 
drawn  and  debated  included  all  building  materials.  Why 
was  lumber  excepted?  Because,  while  the  bill  was  still 
pending,  a  special  car  filled  with  the  lumber-lords  of 
Michigan  and  Wisconsin  was  rolled  to  Washington  in 
haste,  and  the  potent  influence  of  these  men  was  sufficient 
to  cause  the  express  exemption  of  their  product  from  the 
intended  cheapening  (for  one  year)  of  the  building  mate- 
rials for  desolated  Chicago.  The  brief  official  record  of 
this  curious  transaction  will  be  found  in  U.  S.  Statutes  for 
1872,  page  33.  It  needs  no  comment  but  the  obvious  one, 
that  here  is  the  whole  matter  of  protectionism  in  a  nut- 
shell ;  —  the  motive,  the  open  confession,  the  greedy  lobby 
determined  to  thrive  on  their  neighbors'  misfortunes,  the 
inhumanity,  the  spirit  of  monopoly,  the  infernalism,  —  a 
game  of  grab  from  beginning  to  end ! 

Shameless  as  the  protectionist  debates  in  Congress  have 
been  from  the  start,  in  letting  it  be  plainly  seen,  that  the 
sole  motive  of  their  efforts  is  an  artificial  rise  of  price  in 
certain  goods  which  their  fellow-citizens  would  be  com- 
pelled under  the  law  to  pay,  the  debate  in  the  House  of 
Representatives  in  the  spring  of  1883  was  by  far  the  most 
shameless  and  avowed  in  this  respect  of  any  that  ever 
transpired  there.  In  the  last  days  of  that  debate  all  pre- 
tence of  any  action  for  the  good  of  the  country  at  large 
dropped  utterly  out  of  the  discourse  :  the  old  fallacies  and 
disguises  and  subterfuges  of  "  home  markets  "  and  "  higher 


502  PRINCIPLES   OF   POLITICAL   ECONOMY. 

wages  "  and  "  commercial  independence  "  were  no  longer 
put  forward  even  in  word  under  the  clash  of  selfish  inter- 
ests, and  in  the  eagerness  to  secure  for  their  wares  a  fac- 
titious price  to  be  paid  by  their  countrymen  ;  proposed 
reductions  in  tariff-taxes  were  fought  off  by  these  men, 
and  in  many  instances  still  higher  taxes  were  urged  on, 
under  their  unabashed  avowal  that,  unless  home  prices 
were  thus  stiffened  and  uplifted,  they  could  not  make  and 
sell  their  wares  at  a  profit ;  one  honorable  member  from 
NCAV  Jersey  brought  his  pottery  wares  upon  the  floor  of 
the  House,  and  tried  to  demonstrate  to  his  fellow-members 
that,  unless  these  very  goods  were  hoisted  in  price,  by 
taxes  on  his  foreign  competitors,  he  could  no  longer  tread 
his  clay  and  work  his  wheels  with  profit  to  himself:  in 
other  words,  he  and  others  like-circumstanced,  by  lobbying 
and  log-rolling,  persuaded  Congress  to  pass  so-called  laws 
to  compel  their  countrymen  to  hire  them  to  carry  on  what 
they  publicly  alleged  were  unprofitable  branches  of  business. 
By  their  own  confession,  the  only  trouble  with  their  goods 
was,  that  they  were  inferior  in  quality  and  superior  in 
price  to  otherwise  similar  goods  in  the  open  market  of  the 
world. 

One  more,  and  the  latest  instance,  out  of  hundreds 
equally  accessible  and  equally  conclusive,  will  suffice  for  a 
demonstration  of  the  point  in  hand.  In  the  early  summer 
of  1890,  a  Massachusetts  member  of  the  House  of  Repre- 
sentatives, an  avowed  protectionist  from  an  alleged  protec- 
tionist district  of  that  State,  waxed  so  warm  in  arguing 
against  a  protectionist  tax  upon  a  certain  raw  material 
useful  in  tanning  leather,  that  he  took  off  his  coat  and 
proceeded  in  his  shirt-sleeves  1  One  would  suppose,  both 
from  his  zeal  and  the  tenor  of  his  speech,  that  he  was  a 
veritable  free-trader !  But  no  !  He  had  argued  a  hundred 
times  that  protectionist  taxes  (to  be  paid  by  other  people) 


FOREIGN   TRADE.  503 

were  a  good  thing  for  the  payers,  and  enriched  the  whole 
country  ;  but  lo  !  it  turned  out  in  this  case  that  he  himself 
was  a  buyer  of  this  particular  material,  and  lo  !  he  did  not 
relish  the  tax-lifted  prices  caused  by  the  tariff.  They  were 
all  wrong.  They  must  be  fought  off  at  all  hazards,  even 
in  the  hottest  weather  I  This  is  a  very  respectable  gentle- 
man, well  thought  of  by  his  neighbors  in  Worcester 
County,  but  his  protectionism  is  not  respectable.  It  is 
chameleon-colored.  It  is  one  thing  in  one  light,  and  an 
opposite  thing  in  another  light.  Indeed,  the  protectionist 
congressman  has  never  yet  been  discovered  in  this  coun- 
try, who  was  fond  of  paying  protectionist  taxes  himself,  or 
willing  that  his  immediate  and  powerful  constituents 
should  pay  them !  It  has  been  proven  many  times  over, 
that  the  very  strongest  friends  of  a  Free  List  in  this  broad 
land  have  been  certain  so-called  protectionist  Senators  and 
Representatives. 

From  these  few  sample-examples,  the  reader  of  penetra- 
tion will  perceive,  that  there  is  no  element  of  logical 
coherence  or  moral  decency  or  even  outward  respectability 
in  Protectionism.  There  is  no  principle  in  it  or  of  it.  It 
does  not  hang  together.  It  walks  in  darkness  and  not  in 
light.  It  is  full  of  deceit.  It  is  fond  of  disguises.  It  is 
contrary  to  common  sense.  It  offends  justice.  Morality 
frowns  at  it.  It  has  no  basis  in  any  Science,  least  of  all  in 
the  Science  of  Buying  and  Selling,  whose  best  impulses  it 
feebly  tries  to  deny,  and  whose  largest  and  most  innocent 
gains  it  fain  would  destroy. 

Next  in  order  we  will  examine,  in  the  third  place,  a  few 
of  the  chief  FALLACIES  AND  FALSEHOODS,  by  which  Pro- 
tectionism has  striven  to  give  itself  a  standing  in  the 
commercial  world.  In  our  day  at  least,  these  are,  without 
exception,  afterthoughts  and  subterfuges.  We  have  just 
seen  under  the  last  head  the  real  impulses,  plain  as  a  moun- 


504  PRINCIPLES  OF  POLITICAL  ECONOMY. 

tain  peak,  which  put  on  and  keep  on  and  pile  up  these  taxes 
on  the  masses  of  the  people ;  but  these  real  motives  will 
not  bear  inspection  and  public  criticism,  and  so  plausible 
reasons  must  be  found  or  at  least  propounded,  which  shall 
do  the  double  duty  of  covering  the  real  reasons,  and  of 
seeming  to  convince  while  they  only  perplex  the  victims 
of  the  scheme.  These  plausibilities  we  propose  now  to 
analyze  and  to  expose.  The  test  of  any  alleged  truth  is  its 
harmony  with  acknowledged  truths :  the  test  of  any  pro- 
pounded error  is  its  incongruity  with  and  contradiction  of 
acknowledged  truths.  On  a  logical  comparison,  therefore, 
of  any  false  proposition  with  any  known  truth,  the  latter 
will  be  sure  to  fling  out  its  flat  contradiction  and  floor  the 
falsehood  forever.  Protectionism  contradicts  economic 
truths  at  practically  innumerable  points,  but  we  will  now 
watch  the  collisions  at  the  principal  points  only. 

Fallacy  A :  that  a  nation  may  still  sell  to  foreign  nations 
while  prohibiting  the  buying  from  them.  Protectionism  is 
multiplied  prohibitions  on  the  buying  of  goods  from 
foreigners.  Between  four  and  five  thousand  of  such 
prohibitions  deface  our  national  Statute-book  at  the  present 
moment.  All  the  while,  however,  the  assumption  under- 
lies this  policy,  and  the  express  proposition  is  often  heard 
in  different  forms  along  the  lines,  that  our  citizens  may  still 
sell  their  products  to  foreigners,  nevertheless.  England 
has  got  to  buy  our  cotton  or  starve :  the  Continent  is  com- 
pelled to  take  our  pork  products,  for  they  are  the  cheapest 
food  in  the  world :  how  can  China  or  India  help  taking  the 
silver  from  our  mines  ?  Softly.  Buying  and  selling  from 
the  very  nature  of  it  is  never  compulsory,  but  always 
voluntary.  A  commercial  service  is  never  rendered  but  in 
plain  view  of  a  return-service  to  be  received.  The  mental 
estimation  of  each  buyer  is  couched  in  the  very  terms  of 
what  is  offered  in  return  by  each  seller.  Buying  and 


FOKEIGN  TRADE.  505 

selling  from  its  inmost  nature  is  always  one  act  of  two 
persons  acting  conjointly  and  inseparably  to  the  advantage 
of  each.  How,  then,  can  the  individuals  of  one  country 
sell  anything  to  individuals  of  another  country  without  at 
the  same  instant  buying  of  these  in  return?  The  act  of 
selling  is  just  as  much  buying  as  it  is  selling,  and  the  act 
of  buying  is  just  as  much  selling  as  it  is  buying.  As  we 
have  abundantly  seen  already,  the  introduction  of  Money 
as  a  medium  in  the  transaction  makes  no  difference  in  the 
nature  of  the  exchange  of  commodities  internationally. 
The  postulate,  therefore,  that  the  people  of  one  country 
can  continue  to  sell  products  to  the  people  of  another  while 
refusing  to  take  their  products  of  some  kind  in  return,  is 
an  absurdity  in  the  nature  of  things  and  an  impossibility  in 
the  world  of  facts.  A  market  for  products  is  products  in 
market. 

All  known  facts  confirm  this  irrefragable  reasoning,  and 
discredit  utterly  the  fallacy  in  hand.  When  France  and 
Germany  a  few  years  ago  gave  back  to  our  protectionists  a 
dose  of  their  own  medicine,  and  prohibited  American  pork- 
products,  ostensibly  because  they  feared  the  trichinae  but 
really  to  cajole  their  own  farmers  under  the  plea  of  protec- 
tionism, their  brethren  in  the  faith  have  made  up  all  sorts 
of  faces  ever  since,  have  wound  up  the  respective  diplo- 
matic clocks  to  strike  twelve  against  the  too  presumptu- 
ous countries  which  ventured  to  restrict  American  products 
in  their  ports,  have  protested  and  proclaimed.  What  is 
the  matter  ?  Is  not  sauce  for  the  goose  sauce  for  the  gander 
also  ?  Have  not  American  protectionists  shut  out  French 
and  German  products  100  :  1  under  the  same  plea  now 
used  on  the  Continent?  "But  we  cannot  sell  our  products 
abroad"  cry  the  angered  Western  farmers.  Of  course  they 
cannot,  because  restrictions  on  buying  are  restrictions  on 
selling;  and  additional  restrictions  of  the  same  kind  put 


506  PRINCIPLES    OF   POLITICAL   ECONOMY. 

on  French  and  German  buying  are  of  course  still  further 
restrictions  on  American  selling.  And  the  farmers  are,  as 
usual,  the  victims  both  ways. 

To  hear  an  ordinary  American  protectionist  talk,  one 
would  think  that  Great  Britain  is  the  enemy  of  mankind 
for  admitting  into  her  ports  practically  without  let  or  hin- 
drance the  goods  of  all  the  world.  Free  Trade  England! 
Let  us  look  a  moment.  England  has  to  pay  for  all  these 
goods  received  from  all  quarters.  In  what  does  she  pay  ? 
In  her  own  goods,  of  course.  What  is  her  market?  The 
whole  world.  Is  that  market  ever  slack  on  the  whole  ? 
Never.  Is  she  ever  flooded  with  cheap  goods  ?  The  more 
she  buys  the  more  she  sells  of  necessity.  How  much  does 
she  sell  per  capita  of  her  people  ?  More  than  twice  as 
much  as  the  United  States  sells  per  capita.  How  can  she 
sell  so  much  of  her  own  stuff?  Because  she  buys  freely 
other  stuff  from  all  the  world.  What  are  the  limits  to  her 
capacity  to  sell  her  own  goods  to  foreigners  ?  Precisely 
the  limits  of  her  willingness  to  take  in  pay  other  goods 
from  foreigners.  Cannot  these  limits  be  overpassed  in 
either  direction  ?  By  no  possibility :  when  people  can  no 
longer  pay  for  what  they  buy,  the  buying  ceases;  and 
when  they  are  not  permitted  to  take  their  pay  for  what 
they  sell,  the  selling  ceases.  Is  this  free  trade  profitable 
to  Great  Britain?  Immensely  so  in  every  way.  Whither 
has  it  carried  up  her  ocean-marine  ?  To  the  topmost  notch. 
Is  capital  abundant  in  England  in  bulk,  and  are  its  loana- 
ble rates  low?  England  is  the  richest  country  in  the 
world,  and  all  nations  resort  thither  to  buy.  What  is  the 
source  of  this  vast  volume  of  Capital  ?  The  only  source 
of  Capital  is  savings  from  the  natural  gains  of  Buying  and 
Selling. 

Is  Great  Britain  willing  to  take  in  goods  from  the  United 
States  ?  Certainly,  under  the  universal  conditions  of  taking 


FOREIGN   TRADE.  507 

in  foreign  goods  at  all.  Is  the  United  States  willing  to 
take  in  British  goods  in  pay  for  her  own  goods  exported 
thither?  She  is  not,  except  over  protectionist  barriers 
averaging  47%.  Is  it  a  good  thing  for  the  United  States, 
that  Great  Britain  takes  in  her  goods  freely  ?  We  should 
suppose  so  !  Does  the  former  already  sell  to  the  latter  and 
through  the  latter  more  goods  than  to  all  the  world  besides  ? 
Much  more.  Could  this  profitable  trade  be  easily  increased? 
It  could  be  quadrupled  in  a  very  short  time.  How  ?  By 
simply  according  to  our  citizens  a  decent  liberty,  which  is 
their  inalienable  right.  Would  the  United  States  like  it  to 
be  commercially  treated  by  Britain  exactly  as  the  former 
treats  the  latter  ?  It  would  bankrupt  the  United  States  in 
six  months.  Would  our  protectionists  like  it  ?  It  would 
make  them  howl.  Is  it  the  commercial  salvation  of  the 
United  States  that  Britain  is  immovably  for  free  trade  with 
her  and  the  rest  of  the  world?  Nothing  else  saves  her 
from  commercial  ruin.  Can  the  ghost  of  a  reason  be  given, 
commercial  or  other,  why  the  United  States  should  con- 
tinue to  fling  double  fists  into  the  face  of  British  goods 
seeking  a  market  and  so  making  one  ?  Not  a  shadow  of  a 
shade  of  a  good  reason  was  ever  given  for  such  folly,  or 
ever  can  be. 

It  is  more  than  a  pleasure  to  acknowledge  at  this  point 
the  great  service  done  by  James  G*  Blaine,  Secretary  of 
State,  during  the  summer  of  1890,  to  Country  and  Com- 
merce, by  his  courageous  avowal  contrary  to  his  own  per- 
sonal record  and  to  the  vehement  behest  of  his  party,  that 
the  economic  principle  just  enunciated  is  sound,  and  should 
be  at  once  applied  by  the  United  States  in  connection  with 
all  the  countries  of  Latin  America.  In  a  letter  to  the 
Senate  on  the  results  of  the  recent  Pan-American  Confer- 
ence, he  said :  "  The  Conference  believed  that  while  great 
profit  would  come  to  all  the  countries,  if  reciprocity  treaties 


508  PRINCIPLES    OF   POLITICAL   ECONOMY. 

could  be  adopted,  the  United  States  would  be  by  far  the 
greatest  gainer"  The  principle  of  reciprocity  is  the  prin- 
ciple of  free  trade  applied  by  both  parties  to  the  trade.  It 
is  the  sound  principle,  that  goods  buy  goods  and  pay  for 
goods  at  the  same  instant  to  a  mutual  profit.  Manifold 
reiterations  of  this  principle  came  from  the  Secretary  that 
summer,  especially  in  vigorous  protestations  against  the 
McKinley  tariff-bill  then  pending,  alleging  with  truth  that 
"there  is  not  a  line  or  a  section  in  the  bill  which  opens  a 
market  for  another  bushel  of  wheat  or  another  barrel  of 
pork"  The  unequivocal  statements  of  a  favorite  states- 
man have  roused  the  somewhat  indifference  of  thousands 
of  citizens,  and  make  certain  the  speedy  prevalence  in  the 
United  States  of  the  unassailable  doctrine,  that  any  Peo- 
ple must  buy  freely  if  they  would  sell  broadly. 

Fallacy  B  :  that  tariff-taxes  are  needful  in  order  to  start 
infant  industries.  There  is  no  analogy  whatever  between 
Child-bearing  and  Child-growing  and  any  form  of  Buying 
and  Selling  at  any  time,  but  the  deceit  in  the  wretched 
simile  has  cost  the  world  billions  of  dollars  of  pure  loss. 
To  bring  up  infants  from  birth  to  maturity  is  indeed  a 
good  deal  of  a  task  for  the  parents,  but  it  is  not  in  any 
sense  an  economical  task  :  the  parents  neither  ask  for  nor 
receive  a  return-service  in  kind :  the  transaction  is  wholly 
moral  in  its  character,  and  not  economical  at  all :  there  is 
no  party  of  the  second  part  in  the  premises :  there  is  a 
free  giving,  and  that  is  all.  Buying  and  Selling,  on  the 
contrary,  has  no  infancy,  and  no  maturity  and  no  old  age. 
This  particular  Minerva  springs  at  once  full-grown  and 
full-armed  from  the  brain  of  Jove.  The  conditions  of 
Trading  are  forever  the  same  ;  with  no  reference  to  the 
age  of  the  parties,  the  antiquity  of  the  industry,  or  any 
other  such  irrelevant  thing.  If  any  person  anywhere  (old 
or  young)  has  got  something  to  sell,  and  finds  (directly 


FOREIGN  TRADE.  509 

or  indirectly)  any  other  person  anywhere  who  wants  his 
wares  and  can  pay  for  them,  —  all  the  conditions  of  mutual 
profit  are  present,  and  everything  else  is  an  impertinence. 

Much  more  than  this.  Tariff-taxes  have  to  be  paid  by 
somebody.  Their  payment  is  inexorable  at  the  custom- 
house, and  interest  and  other  charges  are  added  before  the 
sum  reaches  the  ultimate  payer.  But  the  ultimate  sum 
however  made  up  is  exactly  so  much  out  of  the  commercial 
gains  of  the  payer.  The  sign  is  every  time  minus  and  not 
plus.  When  egregiously  high  tariff-taxes  are  multiplied 
in  number,  and  all  the  additions  are  made  to  them,  they 
become  an  incalculably  large  sum,  every  cent  of  which  lias 
to  be  paid  out  of  the  gains  of  current  Industry.  Now, 
what  a  queer  way  that  is  to  foster  industries  !  What  a 
queer  way  to  help  start  them !  It  takes  Capital  to  start 
new  industries,  and  to  carry  on  old  ones ;  but  tariff-taxes 
(with  all  their  accretions)  take  just  so  much  out  from 
what  would  otherwise  naturally  become  Capital.  That  is 
to  say,  all  Capital  is  savings  from  the  gains  of  Exchanges ; 
and  these  gains  are  reduced  by  every  tariff-tax  that  touches 
them  directly  or  indirectly.  Taxes  from  their  very  nature 
can  help  nobody.  They  hurt  everybody.  What  a  device 
this  is  to  start  new  industries  with,  namely,  to  pick  the 
pockets  of  the  very  men,  who  are  to  start  the  industries, 
if  they  ever  are  to  start  at  all !  Lower  your  reservoir  to 
begin  with,  in  order  to  give  head  and  force  to  your  faucet 
flow! 

But  this  is  not  half  of  it.  On  what  industries  do  the 
protectionist  taxes  fall  at  first  to  weaken  and  discourage 
them  ?  Of  course  on  the  natural  and  profitable  ones, 
which  only  ask  to  be  let  alone  in  order  to  maintain  a 
healthful  life  and  growth.  If,  under  natural  conditions, 
any  industry  is  in  existence,  one  may  be  perfectly  sure  it 
is  profitable,  since  Profit  is  the  only  thing  in  the  world 


510  PRINCIPLES    OF   POLITICAL   ECONOMY. 

that  can  start  and  build  up  an  industry :  when  the  profit 
ceases,  the  trade  ceases  of  necessity:  the  motive  to  it  is 
gone.  In  behalf  of  what  sort  of  industries  are  these  taxes 
ostensibly  and  plausibly  levied  ?  Only,  if  we  are  to  believe 
the  protectionists,  the  weak  and  presently  unprofitable 
ones.  It  is  the  infant  industries  that  need  the  nursing-bottle! 
That  is  to  say,  tax  down  and  perhaps  destroy  the  profitable 
industries,  the  industries  that  pay,  that  can  paddle  their 
own  canoe  and  no  thanks  to  anybody,  in  order  to  bring 
•forward  certain  other  industries,  which  by  confession  and 
open  proclamation  are  unprofitable,  and  can  only  start  by 
taxing  their  neighbors  !  Of  course,  there  is  a  cat  in  this 
meal,  and  we  shall  let  her  out  of  the  bag  in  plain  sight 
presently;  but  we  are  taking  now  our  friends,  the  pro- 
tectionists, at  their  own  word,  and  exhibiting  their  mar- 
vellous wisdom  under  the  terms  of  their  own  choosing. 
What  a  blessed  way  for  a  nation  to  grow  rich,  to  smite 
down  with  high  taxes  the  active  and  enterprising  and 
independent  and  therefore  profitable  industries  with  one 
hand,  and  grope  around  with  the  other,  to  find  some  poor 
and  inactive  and  unfrugal  and  naturally  unprofitable  in- 
dustries, in  order  to  fetch  forward  these  by  means  of  the 
plunder  filched  from  the  others  ! 

To  go  back  for  historical  illustration  to  Washington's  first 
administration,  when  the  first  (extremely  mild)  protection- 
ist taxes  were  levied  in  this  country,  we  have  the  highest 
authority  for  knowing  that  many  of  the  leading  branches 
of  manufactures  were  prosperous  and  profitable.  They 
had  no  artificial  help  in  order  to  start,  but  on  the  contrary 
had  had  continual  discouragement  for  a  century  under 
the  miserable  protectionist  policy  of  the  mother  country. 
Washington  himself  was  inaugurated  in  a  dark  brown 
suit  of  woollen  cloth  of  American  manufacture :  so  was 
John  Adams  inaugurated  first  Vice-President  of  the  United 


FOREIGN   TRADE.  511 

States  about  the  same  time  in  a  garb  of  wholly  native 
manufacture.1  This  was  in  April,  1789.  In  November  of 
the  same  year,  Washington  returned  to  New  York  from 
his  first  tour  in  New  England  "  astonished  both  at  the  mar- 
vellous growth  of  commerce  and  manufactures  in  New  Eng- 
land and  the  general  contentment  of  its  inhabitants  with  the 
new  government"  (Schouler,  p.  117).  Alexander  Hamilton, 
the  first  Secretary  of  the  Treasury,  in  his  famous  Report 
to  Congress  on  Manufactures,  in  1791,  enumerated  seven- 
teen branches  as  then  thriving  so  as  to  fairly  supply  the 
home  market,  and  settle  into  regular  trades.  These  were, 
skins  and  leather,  flax  and  hemp,  iron  and  steel,  brick  and 
pottery,  starch,  brass  and  copper,  tinware,  carriages,  pain- 
ter's colors,  refined  sugars,  oils,  soaps,  candles,  hats,  gun- 
powder, chocolate,  snuff  and  chewing  tobacco.  It  is  plain 
enough  from  the  debates  of  the  time  as  well  as  from  the 
nature  of  the  case,  that  the  protectionist  taxes  in  our  first 
two  Tariffs,  already  considered  here  in  detail,  although 
they  were  comparatively  slight  in  number  and  amount, 
fell  in  the  way  of  discouragement  on  these  incipient  yet 
independent  manufactures  as  well  as  upon  all  the  farmers 
of  the  land.  There  can  be  but  little  rational  question, 
that  the  woollen  industry  was  sounder  at  the  core  in  1789, 
when  Washington  was  inaugurated  in  native  woollens, 
than  in  1889,  when  Harrison  was  inaugurated  in  the  same, 
the  ostentatious  gift  of  a  firm  of  protectionist  woollen 
manufacturers  shortly  afterwards  adjudged  to  be  bankrupt 
and  fraudulently  so. 

The  best  point,  after  all,  to  make  against  this  hollow 
fallacy,  is  the  practical  one,  that  no  industry  whatever, 
whether  "  infant "  or  other,  has  ever  come  in  this  country 
into  an  acknowledged  self-sustaining  position  under  a 
whole  century's  tariff-taxes.  Salt,  hemp,  coal,  cottons, 
1  See  James  Schouler' s  United  States,  p.  77  of  Vol.  I. 


512  PRINCIPLES   OF   POLITICAL   ECONOMY. 

woollens,  nails,  and  iron  and  steel  products  generally,  were 
the  chief  articles  protectionized  at  first,  and  have  been  pro- 
tectionized  ever  since,  but  no  one  of  them  all  has  ever 
come  into  a  condition  of  self-support  according  to  the  view 
of  the  privileged  beneficiaries.  Each  one  of  them  was  an 
old  industry,  and  a  relatively  rich  industry,  when  it  was 
taken  under  the  "  fostering  care  "  of  the  tariff-taxes,  levied 
for  their  further  enrichment  on  the  masses  of  the  people  ; 
and  it  was  only  greedy  and  secret  combinations  among 
these  for  that  purpose,  which  put  them  at  first  and  has 
kept  them  ever  since  in  the  rank  of  public  beneficiaries. 
The  simple  truth  is,  that  diversity  of  employments  is 
rooted  in  human  nature  and  in  the  circumstances  amid 
which  God  has  placed  men,  and  so  far  is  it  from  being 
true  that  taxes  and  restrictions  are  needful  in  order  to 
foster  manufactures,  taxes  and  prohibitions  cannot  prevent 
them  from  springing  into  life  !  They  are  just  as  natural 
to  men  and  to  colonies  as  agriculture  is.  Indeed,  agricul- 
ture can  scarcely  take  a  step  without  them.  The  farmer 
must  have  ploughs  and  carts  and  other  implements ;  and, 
depend  upon  it,  there  are  some  natural  mechanics  in  that 
colony.  Clothes  are  as  needful  as  food,  and  spinning  and 
weaving  in  some  form  will  begin  at  once,  and  prohibitions 
will  be  powerless  to  stop  them. 

Deadly  to  the  fallacy  in  hand  is  the  word  of  unquestion- 
able History.  Any  one  may  read  in  Palfrey  and  Bancroft 
and  Hildreth  such  facts  as  these,  scattered  all  along 
through  the  noble  volumes.  The  manufacture  of  linen 
and  woollen  and  cotton  cloth  was  begun  in  Massachusetts 
in  1638,  in  Rowley,  by  some  families  from  Yorkshire ;  and 
became  so  remunerative  in  a  couple  of  years  that  some 
acts  of  the  General  Court  designed  to  stimulate  it  were 
repealed.  Brick-making  and  glass-works  and  the  manu- 
facture of  salt  were  all  begun  in  Massachusetts  before  1640. 


FOREIGN   TRADE.  513 

In  1643,  the  younger  Winthrop  established  iron-works  in 
Braintree  and  Lynn,  which  after  some  losses  were  success- 
fully prosecuted.  Within  less  than  twenty  years  there- 
after, tannery  and  shoemaking  had  made  such  strides,  that 
boots  and  shoes  became  articles  of  export.  That  these 
were  no  fancy  beginnings  in  manufactures,  we  may  strik- 
ingly learn  from  an  Act  of  Parliament  passed  in  1698. 
Notice  the  date.  This  law  is  a  sample  of  many  more  :  - 
"  After  the  first  day  of  December,  1699,  no  wool,  or  manufac- 
ture made  or  mixed  with  wool,  being  the  produce  or  manu- 
facture of  any  of  the  English  plantations  in  America,  shall 
be  loaden  in  any  ship  or  vessel,  upon  any  pretence  whatso- 
ever, —  nor  loaden  upon  any  horse,  cart,  or  other  carriage, 
—  to  be  carried  out  of  the  English  plantations  to  any  other 
of  the  said  plantations,  or  to  any  other  place  whatsoever" 
Thus  the  fabrics  of  Massachusetts  were  forbidden  to  find 
a  market  in  Connecticut,  or  to  be  carried  to  Albany  to 
traffic  with  the  Five  Nations.  "  That  the  country  which 
was  the  home  of  the  beaver  might  not  manufacture  its  own 
hats,  no  man  in  the  colonies  could  be  a  hatter  or  a  journey- 
man at  that  trade,  unless  he  had  served  an  apprenticeship 
of  seven  years.  No  hatter  might  employ  more  than  two  ap- 
prentices. No  American  hat  might  be  sent  from  one  plan- 
tation to  another."  In  1701  the  three  charter  colonies  are 
reproached  by  the  lords  of  trade  "  with  promoting  and  prop- 
agating woollen  and  other  manufactures  proper  to  England" 
In  1721  New  England  alone  had  six  furnaces  and  nine- 
teen forges,  and  there  were  many  others  in  Pennsylvania 
and  Virginia.  Parliament  enacted  in  1750  that  no  more 
mills  should  be  erected  in  America  for  slitting  or  rolling 
iron,  or  forges  for  hammering  it,  or  furnaces  for  making 
steel ;  and  in  certain  cases,  agents  of  the  crown  were  au- 
thorized to  tear  down  such  establishments  as  "  nuisances" 
How  far  all  the  arts  of  navigation  had  been  carried  in  the 


514  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Colonies  before  the  Revolution,  every  one  may  read  in 
Burke's  famous  speech  on  Conciliation  with  America. 
How  far  the  products  of  the  loom,  the  forge,  and  the  anvil, 
were  already  being  exported,  in  spite  of  British  legislation, 
to  other  countries,  any  one  may  see  in  Lord  North's  last 
proposals  and  concessions  to  ward  off  Independence. 

Protectionism  having  once  fed  its  petted  beneficiaries 
from  the  public  crib,  that  is  to  say,  from  taxes  wrenched 
from  the  many  to  enrich  the  few,  invariably  clamors  for 
more  and  more  rations  for  its  pets  from  the  same  public 
source.  Not  only  does  no  industry  become  self-supporting 
by  its  bite  and  its  sup,  but  each  becomes  according  to  its 
own  facile  representations  and  representatives,  more  and 
more  helpless  in  itself,  more  and  more  shameless  in  its 
demands,  more  and  more  entitled  to  public  charity,  and 
less  and  less  inclined  to  surrender  one  iota  of  past  or 
present  privilege.  The  daughters  of  the  horse-leech  cry 
continually,  Give  !  Give  !  The  following  schedule  relates 
to  woollens  mainly,  but  it  is  a  fair  sample  of  many  other 
protectionized  classes  of  goods  under  the  successive  tariffs 
in  this  country,  in  point  of  increased  taxes  on  the  people 
in  their  behoof.  While  these  lines  are  being  written,  the 
McKinley  tariff-bill,  so-called,  having  passed  the  House,  is 
pending  in  the  Senate.  It  is  significant,  that  this  piece  of 
legislation,  whether  it  be  finally  enacted  or  not,  proposes 
to  open  the  second  century  of  the  United  States  Protec- 
tionism by  largely  hoisting  the  tariff-taxes  along  the  main 
line.  Infant  industries  indeed ! 


FOREIGN   TRADE. 

bd 


515 


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516  PEINCIPLES   OF   POLITICAL  ECONOMY. 

It  is  also  significant  in  this  connection  to  read  an  extract 
from  the  Report  of  Mr.  William  Whitman,  President  of 
the  National  Association  of  Wool  Manufacturers,  dated 
March  29,  1890,  to  the  Stockholders  of  the  Arlington 
Mills,  Massachusetts.  "  I have  been  your  Treasurer  for  a 
consecutive  period  of  twenty  years.  During  this  period  the 
average  earnings  have  been  20T8Q-  per  centum  upon  the  capi- 
tal. The  earnings  of  the  last  year  were  nearly  three  and  a 
half  times  those  of  the  year  previous,  and  there  is  every 
indication  that  the  current  year  will  be  the  most  profitable 
one  in  the  company's  history" 

Fallacy  C  :  that  a  home  market  is  better  and  broader  than 
a  foreign  market.  Professor  Thompson  of  Pennsylvania  has 
publicly  and  repeatedly  stated,  that,  by  a  persistent  policy 
of  Protectionism  a  "home  market"  would  be  created  for 
all  the  bread-stuffs  that  this  great  country  produces ;  and 
John  Roach,  the  shipbuilder,  expatiated  at  length  before 
the  Tariff  Commission  of  1882  on  the  advantages  the 
farmer  derives  from  the  better  "home  market"  already 
created  by  Protectionism.  To  come  nearer  home  in  place 
and  further  down  in  time,  there  was  organized  in  Eastern 
Massachusetts  with  headquarters  at  Boston  in  some  con- 
nection with  the  national  election  of  1888,  a  so-called 
"  Home  Market  Club  "  of  large  proportions.  It  is  gener- 
alty  understood  in  the  State,  that  a  large  minority,  if  not  a 
majority,  of  the  members,  are  displeased  with  the  McKin- 
ley  Bill  of  1890,  declaring  that  the  mustard  is  carried  to 
fanaticism  in  this  bill,  that  neither  the  "home  market" 
nor  any  other  can  profit  by  such  a  series  of  prohibitions. 

However  this  last  may  be,  it  is  plain,  that  a  ridiculous 
and  most  harmful  fallacy  underlies  all  references  to  a 
"  home  market "  in  any  connection  with  foreign  trade.  It 
is  simple  Gospel  charity  to  believe,  that  Thompson  and 
Roach  and  the  founders  of  the  Home  Market  Club  and  all 


FOREIGN   TRADE.  517 

others,  who  repeat  this  wretched  stuff,  never  stopped  in 
their  thoughts  long  enough  to  inquire  what  a  "  market " 
really  is,  never  analyzed  into  its  simple  elements  that  com- 
posite thing  called  a  "  market,"  but  each  and  all  in  turn 
have  taken  up  a  catch-word  carelessly  which  seems  on  the 
surface  to  have  some  significance  though  in  reality  it  has 
none. 

All  will  agree,  if  they  will  stop  to  think,  that  a  "  mar- 
ket" is  always  made  up  of  buyers  with  return-services 
in  their  hands.  A  bigger  home  market  than  before  con- 
sists only  in  more  domestic  buyers  than  before,  all  ready 
with  acceptable  pay  in  all  their  hands.  More  persons 
than  before,  more  services-in-return  than  before.  Now,  if 
Protectionism  can  enlarge  the  home  market,  it  must  be 
(1)  either  by  increasing  the  number  of  births  or  diminish- 
ing the  number  of  deaths  in  a  given  time  in  a  given  coun- 
try. Precisely  how  big  bundles  of  big  taxes,  which  the 
whole  population  must  pay  in  one  form  or  another  and  over 
and  over  again,  may  be  made  to  stimulate  births  or  prolong 
lives,  no  reasonable  man  can  see,  and  it  is  not  unreasonable 
to  deny  that  a  protectionist  can  see  it.  But  conceding 
that  he  can  see  and  show  this,  his  task  is  then  but  half 
done,  for  he  must  proceed  to  see  and  show  how  these  same 
onerous  taxes  are  able  (2)  to  multiply  the  return-services 
in  the  hands  of  this  increased  population  ! 

If  he  think  at  all,  the  protectionist  is  compelled  to 
remember,  that  his  system  is  always  and  everywhere  a 
series  of  prohibitions  on  profitable  trade.  A  profitable  trade 
always  gives  birth  to  gains.  It  always  gives  birth  to  Capi- 
tal. It  always  gives  birth  to  Plenty.  That  is  the  nature 
of  it,  and  the  Divinely  ordained  blessing  on  it.  But  when 
the  greater  part  of  these  gains  are  artificially  cut  off,  when 
the  possible  capital  is  reduced  in  volume,  when  the  scarcity 
comes  in  which  is  the  primary  purpose  of  Protectionism  to 


518  PRINCIPLES   OF   POLITICAL  ECONOMY. 

create,  it  shall  go  hard  if  there  be  even  as  many  return- 
services  as  when  the  process  began.  Not  a  better  "  home 
market,"  but  a  more  meagre  one,  is  the  inevitable  issue  of 
restrictions  and  prohibitions. 

If  our  protectionist  try  to  get  out  of  this  snug  place,  in 
which  he  now  finds  himself,  provided  he  is  able  to  feel  the 
force  of  any  logic  whatever,  by  claiming  that  his  broader 
"  home  market "  is  to  be  made  by  new  immigrants  with 
old-world  values  in  their  hands  to  buy  with,  he  certainly 
cannot  escape  by  this  route,  because  (1)  he  must  in  order  to 
do  this  see  and  show  what  there  is  in  big  taxes  enormously 
multiplied  to  invite  immigrants  here  at  all;  and  (2)  our 
typical  protectionist  is  scared  to  death  by  the  handiwork  of 
foreign  "  pauper  labor  "  wherever  exposed  for  sale,  and  of 
course  he  is  not  prepared  to  welcome  the  pauper  laborers 
themselves,  of  which  class  as  described  by  him  the  immi- 
grants would  mostly  consist ;  and  besides,  the  tariff  would 
not  admit  to  our  shores  the  old-world  values,  which  would 
be  the  immigrants'  sole  return-services  to  help  make  up  the 
new  market ! 

Within  a  week  of  the  present  writing,  Senator  Morrill  of 
Vermont  has  broached  from  his  place  the  idea  in  debate, 
that  the  industries  of  the  United  States  can  be  so  stimu- 
lated by  protectionism  as  to  cause  the  consumption  of  all 
the  agricultural  products  of  the  United  States.  Well, 
when  ?  •  The  stimulus  has  been  applied  now  just  thirty 
years  under  Mr.  Merrill's  own  eye,  and  by  a  tariff  called 
by  Mr.  Morrill's  own  name,  increasing  its  rates  every  little 
while,  even  in  1883,  when  the  public  pretence  was  to 
diminish  them ;  and  agricultural  products  of  all  kinds, 
including  lard  and  pork  and  wool,  have  never  been  so 
"  deadly  dull "  as  in  this  interval  of  high  protectionism. 
Scores  of  thousands  of  bushels  of  well-ripened  Indian  corn 
were  burned  for  fuel  in  the  more  western  States  and  Terri- 


FOREIGN   TRADE.  519 

tories  the  very  last  winter,  because  the  market  for  it  was 
too  poor  to  pay  for  its  transportation  to  Chicago  over 
protectionized  rails,  and  in  cars  built  of  tariff-cursed 
lumber,  every  nail  and  bolt  and  screw  in  which  doubled  in 
price  from  the  same  general  causes.  If  Mr.  Morrill  were 
not  in  his  dotage,  or  if  in  his  prime  he  had  ever  closely 
analyzed  a  single  case  of  trade,  foreign  or  domestic,  he 
would  see  that  the  abandoned  farms  of  his  own  State 
reckoned  to  be  about  one-third  of  the  cultivated  land  on 
the  eastern  slope  of  the  Green  Mountains  to  the  Connecti- 
cut River,  —  Mr.  Merrill's  own  native  region  and  residence, 
—abandoned  farms  for  two  years  past  assiduously  sought  by 
State  officials  to  be  filled  in  if  possible  by  immigrants  from 
Sweden  virtually  giving  them  the  lands  and  farm-buildings, 
—  fling  out  their  flat  contradictions  to  this  senatorial 
drivel ;  that  the  constant  decline  for  a  quarter  of  a  century 
of  the  farming  population  in  every  State  in  New  England 
gives  the  lie  to  this  miserable  proposition ;  and  that  the 
constantly  increasing  area  of  mortgaged  farms  in  every 
agricultural  State  in  this  Union  is  an  overwhelming  proof 
that  the  "  home  market  "  for  farm  staples  has  been  growing 
constantly  worse  for  years  under  this  boasted  protectionism. 
The  year  1890  is  likely  to  prove  the  pivotal  point  of 
time  in  the  swing  of  this  whole  proposition  of  Deceit,  for 
two  reasons,  namely,  (1)  it  is  the  year  of  the  decennial 
Census,  in  which  at  least  a  half-hearted  attempt  is  being 
made  to  bring  out  the  aggregate  area  in  each  State  of  the 
mortgaged  farming  lands,  and  nothing  can  prevent  the 
appearance  in  which  of  the  lessening  volumes  of  population 
in  the  purely  agricultural  communities ;  and  (2)  the  year 
has  already  been  marked  by  the  political  revolt  from  the 
party  of  protectionism  of  the  masses  of  the  farmers  in  the 
Mississippi  Valley,  and  their  organization  into  "  Farmers' 
Alliances,"  naturally  and  demonstrably  hostile  to  all  Re- 
strictions on  the  sale  of  farmers'  produce. 


520  PRINCIPLES    OF    POLITICAL   ECONOMY. 

Fallacy  D :  that  protectionism  tends  to  raise  the  wages  of 
general  laborers.  In  our  third  chapter,  the  whole  doctrine 
of  Wages  was  clearly  and  carefully  laid  down,  and  it  is 
only  needful  now  to  remind  the  reader  of  two  or  three  of 
those  fundamental  principles.  The  Labor-giver  and  the 
Labor-taker  only  touch  each  other  at  the  old  points  of  re- 
ciprocal Desires  and  Renderings.  There  are  two  persons 
standing  in  that  relation  each  to  each.  A  rate  of  Wages  is 
always  a  result  of  a  Comparison.  If  the  Labor-takers, 
whoever  they  may  be,  more  strongly  desire  the  services 
of  the  Labor-givers,  whoever  they  may  be,  other  things 
remaining  as  before,  there  will  be  a  rise  in  the  rates  of 
Wages,  because  Effects  always  follow  the  operation  of 
Causes  in  Economics,  as  in  all  other  scientific  spheres ; 
and  if  the  Labor-takers,  for  any  reason,  desire  less  than 
before  the  services  of  Laborers,  other  things  being  equal, 
the  general  rates  of  Wages  will  decline  of  necessity. 

Now,  what  is  the  necessary  effect  of  Protectionism  upon 
the  general  Demand  for  Laborers?  How  is  the  whole 
class  of  Labor-takers  affected  by  prohibitory  tariff-taxes  ? 
Note  every  time,  that  it  is  the  presently  and  independently 
profitable  industries,  the  industries  that  ask  for  nothing 
except  to  be  let  alone,  that  are  struck  and  restrained  by 
these  tariff-taxes  ;  the  fact  that  any  industry  is  successfully 
going  forward  under  its  own  motives  is  sufficient  proof  of 
its  own  profitableness ;  these  are  the  industries,  in  every 
case,  which  are  curtailed  by  restrictive  tariff-taxes,  their 
former  gains  are  lessened  of  course  arid  by  design,  and 
their  motives  consequently  to  hire  Laborers  to  carry  on 
these  branches  of  business  now  taxed  and  tormented  are 
lessened ;  less  Desire  for  Labor-givers  gives  laborers  less 
every  time  round  ;  the  so-called  argument  of  Protectionists 
is,  to  introduce  alleged  unprofitable  industries  by  means  of 
taxing  down  profitable  ones  ;  and  pray,  what  effect  must 


FOREIGN   TRADE.  521 

that  have  upon  the  general  Desire  to  employ  Labor-givers, 
and  consequently  what  effect  upon  general  rates  of  Wages  ? 

Take  one  look  further  along  this  same  line.  Tariff- 
taxes  of  this  character  are  designed  to  keep  out,  and  do 
keep  out,  foreign  wares,  which  are  the  natural  and  profit- 
able market  for  domestic  wares:  how  will  this  forced 
exclusion  affect  the  Demand  for  laborers  to  make  or  grow 
the  domestic  wares  whose  market  is  now  lost  ?  And  what 
is  the  influence  on  the  Wages  of  those  whose  services  are 
now  in  lessened  Desire  along  the  whole  line  ?  Causes  pro- 
duce their  Effects  everywhere  and  every  time. 

Dissatisfaction  among,  and  actual  disaster  to,  Labor- 
givers  as  a  class,  have  always  followed  the  imposition  of 
protectionist  tariff-taxes  in  this  country,  as  a  matter  of 
plain  observation  and  record ;  have  followed  increasingly 
and  more  disastrously  increased  restrictions  and  prohibi- 
tions on  profitable  trade  ;  "  Strikes "  on  the  one  hand  to 
resist  a  lowering  or  secure  a  lifting  of  Wages,  "  Lockouts  " 
on  the  other  to  bring  laborers  to  terms,  "  Shut-downs  "  for 
pretended  repairs  in  order  to  gain  time  to  tide  over  the 
gluts  that  always  accompany  artificially  restricted  markets, 
semi-hostile  relations  between  Employers  and  Employed, 
interruptions  to  travel  and  transportation,  timidities  of 
Capital  fatal  to  new  and  enlarged  enterprises,  have  never 
characterized  this  country  so  strikingly  as  during  the 
quarter-century  of  Protectionism  culminating  in  1890. 

The  following  table  accurately  compiled  by  Editor  Phil- 
pott  of  Iowa,  from  the  National  Census,  shows  in  remark- 
able figures  the  relatively  slow  rate  of  progress  of  the 
Nation  in  thirteen  essential  items  of  growth  under  the 
Morrill  Tariff,  as  compared  with  the  rapid  rates  of  progress 
in  the  leading  lines  under  the  Walker  Tariff.  The  com- 
parison lies  in  the  per  centum  of  increase  over  the  previous 
decade  of  the  period  1850-60  relatively  to  each  of  the  two 


522 


PRINCIPLES    OF   POLITICAL   ECONOMY. 


periods  1860-70  and  1870-80 :  the  average  of  the  last  two 
periods  is  taken  for  the  sake  of  an  easier  comparison  of  the 
progress  of  the  one  decade  (Walker)  with  the  average  of  the 
two  later  ones  (Merrill). 


Lines  of  Progress. 

1850-1860. 

Average  each 
Ten  Years  — 
1860-1880. 

Population  

355 

262 

Wealth 

1266 

61  0 

Foreign  commerce,  aggregate 

131  0 

456 

Foreign  commerce,  per  capita. 

703 

152 

Railroads,  aggregate  

2400 

69.0 

Railroads,  per  capita 

1500 

340 

Capital  in  manufactures  ... 

900 

660 

Wa^es  in  manufactures,  aggregate  

603 

58.2 

Wages  in  manufactures,  per  hand  
Products 

17.3 

850 

9.4 
696 

Value  of  farms  

1030 

23.6 

Farm  tools  and  machinery 

620 

27  7 

Live  stock  on  farms 

1000 

173 

The  State  of  Massachusetts  has  been  diligently  and 
scientifically  taking  the  Statistics  of  everything  relating 
to  Laborers  as  such  for  many  years ;  and  we  take  now  by 
way  of  confirmation  of  what  has  just  been  written  a  few 
statements  of  fact  from  the  official  Reports.  One-third  of 
Massachusetts  wage-earners  were  out  of  work  one-third  of  the 
time  under  the  benign  influence  of  Protectionism  [1887]. 
Wages  went  down  in  Massachusetts  on  the  whole  average  5 
per  centum  1872-83,  while  in  the  same  interval  of  time  they 
went  up  9  per  centum  in  Great  Britain  [1885].  Wages  in 
Massachusetts  advanced  in  1830-60  (Walker)  52  per  centum 
and  in  1860-83  only  28  per  centum  (Morrill).  What  is 
called  the  needful  cost  of  living  increased  in  Massachusetts 
between  1860  and  1878  (Merrill)  14^  per  centum  in  spite 
of  immense  cheapenings  in  costs  of  production  and  transpor- 
tation [1885]. 


FOREIGN   TRADE. 


523 


The  U.  S.  Government  has  been  gathering  for  a  long 
time  important  Statistics  relating  to  Laborers  and  their 
Wages  and  their  Costs  of  Living,  not  only  in  the  decennial 
Censuses  but  also  in  Consular  Reports  and  in  the  Reports 
of  a  national  Commission  established  for  that  purpose. 
We  excerpt  a  few  relevant  statements  from  these  almost 
at  random.  Wages  in  free-trade  England  are  from  50  to  100 
per  centum  higher  than  they  are  in  any  protectionized  country 
on  the  Continent  of  Europe.  The  aggregate  Values  of  this 
country  increased  1850-60  (  Walker)  126  per  centum,  and 
in  1870-80  (Jf0m7Q  only  80  per  centum,  after  reducing 
the  census  values  of  1870  to  a  gold  basis.  Vessels  Amer- 
ican-owned and  American-built  controlled  three-fourths  of 
our  foreign  carrying  trade  in  1856,  and  less  than  one-sixth 
of  it  in  1886. 

The  Census  of  1880  gives  the  total  number  of  persons 
employed  in  the  great  subdivisions  of  industry  in  the 
United  States  as  follows :  — 

Trade  and  transportation 1,810,256 

Manufactures,  mechanical  and  mining . .  .3,837,112 

Professional  and  personal  services 4,074,238 

Agriculture 7,670,493 

The  following  table  compiled  from  the  censuses  of  the  last 
four  decades  will  be  found  to  yield  food  for  thought  in  the 
light  of  the  present  paragraphs.  It  relates  solely  to  manu- 
factured goods  at  the  four  successive  epochs. 


1850. 

1860. 

1870. 

1880. 

Value  of  products 

$1  019  109  616 

$1  885  861  676 

$4  232  325  442 

$5,369  579  191 

Value  of  materials  

555,174,320 

1,031,605  092 

2  488  427,242 

3,395,823,547 

Wages  paid  out 

236  759  464 

378,878  966 

775  584  343 

947  953  795 

Materials  to  products,  per 

54 

54 

58 

63 

Wages   to   products,    per 

22 

21 

18 

17 

Average  wages  earned... 
Capital   to   products,   per 
cent  .   . 

$247 
52 

$289 
53 

$377 
50 

$346 
50 

Number  of  establishments 
Average  hands  each  

123,029 
7.79 

140,433 
9.34 

252,148 
8.16 

253,852 
10.79 

524  PRINCIPLES   OF   POLITICAL  ECONOMY. 

Our  manufactures  were  put  down  in  the  Census  of 
1880  as  in  value  15,369,579,191.  But  this  sum  contains 
11,670,000,000  that  does  not  strictly  belong  to  manu- 
factures, such  as  flouring,  lumbering,  blacksmithing,  sugar- 
refining,  coffee-roasting,  slaughtering,  and  a  few  others. 
This  sum  being  taken  out,  there  is  left  in  round  numbers  but 
$3,700,000,000.  This  is  not  a  great  amount  for  50,000,000 
of  people,  and  for  a  land  with  such  natural  advantages 
for  manufacturing  as  our  own. 

Fallacy  E :  that  the  costs  of  Wages  to  employers  and  of 
Materials  to  manufacturers  somehow  justify  Protectionism. 
The  harmful  confusion  is  constantly  made  here  between 
Rates  of  Wages  and  Costs  of  Labor  —  two  very  diverse 
matters.  Rates  of  Wages  depend  on  a  very  different  set 
of  circumstances  from  Costs  of  Labor.  Failure  to  draw 
this  distinction,  and  a  desperate  desire  to  clutch  even  at  a 
straw  with  which  to  bolster  up  absurd  Restrictions,  have 
made  a  hotch-potch  and  a  caricature  of  attempted  argu- 
ment at  this  point.  Rates  of  Wages  have  always  been 
relatively  high  in  this  country  as  compared  with  the  coun- 
tries of  Europe  for  two  general  reasons :  (1)  the  country 
is  new,  with  enormous  natural  advantages  of  every  sort, 
with  comparatively  few  laborers  competing  steadily  with 
each  other  for  work,  large  numbers  of  persons  passing  con- 
stantly out  of  the  employed  into  the  employing  classes ; 
and  (2)  there  has  almost  always  been  from  the  first,  and 
there  is  likely  to  be  again  in  the  immediate  future  even  if 
there  be  not  at  the  present  moment,  a  Money  in  this  coun- 
try depreciated  below  the  gold  standards  of  Europe,  in 
which  the  rates  of  current  wages  are  always  reckoned,  and 
which  makes  them  seem  to  be  higher  than  they  actually  are 
in  purchasing-power.  On  the  other  hand,  Costs  of  Labor 
have  always  been,  and  are  now,  low  in  this  country 
as  compared  with  Europe,  for  two  general  reasons  also : 


FOREIGN  TRADE.  525 

(1)  all  classes  of  laborers  are  more  efficient  and  skilled  in  this 
country  than  in  Europe,  working  with  more  energy  more 
hours  in  the  week,  under  less  cost  of  superintendence, 
being  as  a  rule  more  temperate  and  healthful  and  educated 
persons,  so  that  employers  get  more  for  what  they  give  than 
do  employers  abroad ;  and  (2)  the  cost  of  that  to  the  em- 
ployers in  which  the  laborers  are  paid,  whether  money  or 
other  valuables,  is  always  less  here  than  abroad,  because 
the  money  usually  is  depreciated  money  which  costs  less 
in  commodities,  and  even  if  it  be  not,  the  current  prices  of 
general  commodities  are  higher  here  than  there,  so  that  the 
cost  of  wages  paid  directly  or  indirectly  in  commodities  is 
less  here  to  employers. 

A  second  and  distinct  and  wholly  convincing  proof,  that 
the  Cost  of  Labor  to  employers  has  been  less  here  than 
abroad  during  the  first  century  of  our  national  existence, 
has  been  the  unquestioned  fact,  that  the  Rate  of  Profits 
has  been  higher.  A  constant  stream  of  foreign  Capital  has 
come  hither  for  investment,  drawn  solely  by  the  higher 
rates  of  Profit.  But  if  the  rates  of  Profit  have  proven  to 
be  higher,  the  costs  of  Labor  must  have  been  lower,  because 
laborers  and  capitalists  divide  the  whole  returns  between 
them.  Nobody  else  has  any  claim  upon  the  conjoint  pro- 
ceeds. Profits  are  the  Leavings  of  the  Costs  of  Labor.  If, 
therefore,  these  Leavings  are  larger  in  one  country  than 
another,  then  of  necessity  the  Costs  of  Labor  are  lower  in 
the  first  country. 

Now,  Protectionists  have  had  the  effrontery  (largely  the 
result  of  ignorance)  to  contend,  that  they  are  at  a  disad- 
vantage as  employers  of  laborers  on  account  of  the  rates 
of  Wages  they  are  obliged  to  pay  to  them !  Exactly  the 
reverse  is  the  truth.  Instead  of  being  at  any  disadvantage 
at  this  point,  it  is  a  matter  of  absolute  demonstration,  that 
American  employers  pay  the  smallest  costs  of  Labor  in  the 


526  PRINCIPLES   OF  POLITICAL  ECONOMY. 

world !  Employers  as  such  have  no  interest  in  the  rates 
of  Wages  as  such,  but  only  in  the  costs  of  Labor  to  them- 
selves as  capitalists.  High  rates  of  Wages  not  only  usually 
accompany  low  costs  of  Labor,  but  also  are  a  proof  of  them ! 
The  patient  (not  to  say  stupid)  American  People  have  con- 
sented for  thirty  years  past  to  be  abominably  taxed  for  the 
exclusive  benefit  of  a  set  of  brazen  mendicants,  on  the 
ostensible  ground,  that  the  said  public  beggars  were  unfor- 
tunately placed  in  comparison  with  European  competitors, 
when  the  simple  truth  has  been,  that  they  had  a  constant 
advantage  in  the  best,  and  cheapest  (in  cost  to  themselves), 
and  steadiest  and  most  intelligent  (on  the  whole),  laborers 
in  the  world. 

What  is  the  truth  about  raw  materials  in  this  country  ? 
Especially  raw  materials  in  those  branches  of  industry, 
which  have  been  most  steadily  protectionized  from  the 
first,  like  iron  and  copper,  and  cottons  and  woollens  ?  Can 
any  reason  be  found  for  legislatively  excluding  foreign 
products  of  these  classes  on  the  ground  of  any  disadvan- 
tage of  our  producers  on  the  score  of  raw  materials? 
Look  at  iron  ore,  for  example,  now  protectionized  to  the 
extent  of  75  cents  per  ton.  No  country  in  the  world  pos- 
sesses such  deposits  in  quantity  and  quality  and  accessi- 
bility of  iron  ore  as  the  United  States  of  America.  Vast 
beds  of  the  best  ore  in  the  world,  especially  in  wide 
regions  along  the  whole  course  of  the  Tennessee  River, 
lie  directly  upon  the  surface  of  the  ground ;  and  the  so- 
called  "  Iron  Mountain "  in  Missouri  is  said  to  have  ore 
enough  above  the  general  surface  of  the  country  round  to 
supply  the  wants  of  the  entire  United  States  for  two  cen- 
turies !  Yet  every  ton  of  this  ore  is  artificially  lifted  in 
price  to  the  very  People  to  whom  God  gave  it  in  exceed- 
ing abundance.  The  average  cost  of  mining,  washing, 
screening,  and  loading  upon  steam  freight-cars  for  trans- 


FOREIGN   TRADE.  527 

portation  to  market,  of  brown-hematite  ore  at  one  of  the 
Mines  in  Tennessee  during  the  summer  and  autumn  of 
1890,  was  33  cents  per  ton,  with  a  constant  downward 
tendency  in  cost  as  machinery  was  multiplied  and  methods 
improved.  This  included  the  rent  paid  to  the  owners  of 
the  land  holding  the  ore-beds,  and  every  other  item  of  cost 
carefully  computed  by  the  owner  of  the  capital  and  mana- 
ger at  the  mines.  This  statement  is  made  on  the  authority 
of  the  said  owner  and  manager  over  his  own  sign  manual, 
with  his  consent  given  that  it  be  printed  as  at  present  in 
the  interest  at  once  of  Science  and  Righteousness. 

It  has  often  been  publicly  stated  by  experts,  that  there 
is  more  coal  in  deposit  in  the  United  States  than  in  all  the 
rest  of  the  world  put  together.  Nevertheless,  bituminous 
coal  has  been  protectionized  since  1874  to  the  extent  of  75 
cents  per  ton,  and  slack  or  culm  (another  form  of  coal) 
40  and  30  cents  per  ton.  The  bounty  of  God  to  the  peo- 
ple of  this  country  has  been  so  far  forth  thwarted  by  the 
greed  of  mine-owners  acting  on  the  subservience  of  mem- 
bers of  Congress  to  the  few  rich  combined  for  that  purpose 
to  the  impoverishment  of  the  unorganized  masses.  Espe- 
cially has  every  interest  of  New  England  both  popular 
and  manufacturing  been  sacrificed  to  the  short-sighted 
selfishness  of  the  mine-owners,  because  the  British  Prov- 
inces, just  to  the  northward,  are  full  of  bituminous  coal 
waiting  for  a  market  against  New  England  goods. 

Limestone  is  a  second  indispensable  requisite  for  the 
reduction  of  iron  ores.  God  has  put  the  Ore  and  the  coal 
and  the  lime  in  unfailing  quantities  in  close  proximity 
with  each  other  throughout  the  entire  valley  of  the  Ten- 
nessee. So  small  is  the  natural  cost  of  making  iron  in  that 
favored  region,  that  it  has  been  transported  this  summer 
to  Savannah  by  rail  (freights  heightened  by  tariff-taxes  on 
steel  rails  and  lumber),  and  then  ^fpoijtad,  3000  miles  to 


528 


PRINCIPLES    OF   POLITICAL   ECONOMY. 


Liverpool  with  good  profits  to  the  makeis  by  their  own 
confession. 

Steel  rails  are  protectionized  at  present  to  the  extent  of 
|17  per  ton,  formerly  $28  per  ton.  Fortunately,  we  have 
at  present  a  competent  National  Labor-Commissioner,  here- 
tofore in  the  service  of  Massachusetts  in  the  same  capacity, 
Carroll  D.  Wright,  who  has  just  made  a  Report  to  Congress 
on  the  comparative  cost  of  producing  steel  rails  here  and 
abroad.  The  following  table  is  national  and  official  and 
indisputable.  It  shows  the  Element  of  Cost  in  one  ton  of 
steel  rails  in  Eleven  distinct  establishments,  the  first  Two 
being  located  in  the  United  States,  the  next  Seven  in 
countries  on  the  Continent  of  Europe,  and  the  last  Two  in 
Great  Britain.  The  first  column  gives  the  Cost  of  the 
Material  in  the  several  districts,  the  second  the  Cost  of 
Labor,  and  the  third  the  total  cost  of  the  rails. 


Distinct 
Establishments. 

Materials. 

Labor. 

Total  Cost. 

1 

$21  10 

$1  54 

$2479 

2  

25  11 

138 

27  68 

3  

1767 

104 

19.57 

4 

1806 

251 

22  18 

5 

1806 

464 

2565 

6        

1823 

258 

23  12 

7  

18.10 

2.68 

23.19 

8  

18.66 

2.97 

23.74 

9 

2342 

201 

2702 

10        

1805 

254 

21.90 

11  

16.39 

1.36 

18.58 

The  reader  who  knows  how  to  read  between  the  lines 
will  observe  the  strong  confirmation  of  this  table  to  the 
point  already  made  in  these  pages,  namely,  that  the  "  pauper 
labor  of  Europe"  costs  much  more  at  a -given  point  than 
the  more  highly  paid  labor  of  England  and  the  United 
States.  Thus  :  the  average  Cost  of  Labor  in  a  ton  of  rails 
in  the  two  lafcB&o^ttfctries  is  $1.70;  the  average  in  the 


FOREIGN  TRADE.  529 

seven  Continental  countries  is  $2.63.  The  average  total 
cost  per  ton  in  the  nine  foreign  countries  is  $22.77 ;  the 
average  in  the  two  establishments  here  is  126.23.  It  must 
be  remembered,  that  the  cost  of  the  material  and  of  all  the 
processes  of  manufacture  here  is  greatly  enhanced  by  the 
device  of  the  tariff-taxes:  still  the  difference  in  cost  is 
even  then  only  $3.46  per  ton  greater  than  the  foreigners' 
cost :  considering  that  these  foreign  rails  must  be  carried 
3000  miles  over  sea,  how  comes  it  that  a  tariff-tax  of  $28 
or  $17  per  ton  is  needful  in  order  to  foster  rail-making  in 
this  country?  Take  off  all  the  tariff-taxes  the  rail-makers 
and  transporters  have  to  pay  out,  and  could  they  not  well 
forego  the  additional  taxes  they  now  impose  on  their 
fellow-citizens?  Is  there  anything  anywhere  in  the  natural 
costs  of  Materials  and  Labor  here  to  put  American  manu- 
facturers at  any  disadvantage  in  their  natural  lines  of 
business  as  compared  with  foreigners  in  their  natural  lines 
of  industry  ? 

Fallacy  F:  that  artificial  tariff-burdens  placed  at  one 
point  may  become  a  compensation  for  other  such  burdens 
placed  at  another  point  of  the  same  general  line.  This  fal- 
lacy has  been  luridly  illustrated  in  this  country  since  1867, 
when  in  the  Wool  and  Woollens  Tariff  of  that  year  addi- 
tional protectionism  was  accorded  to  Woollens  ostensibly 
to  compensate  the  manufacturers  for  protectionism  then 
first  accorded  to  raw  wools.  For  a  number  of  years  the 
woollen  manufacturers  had  succeeded  in  persuading  the 
wool-growers  not  to  demand  of  Congress  tariff-taxes  on  raw 
wools,  thus  publicly  confessing  that  such  taxes  raise  the 
prices  of  materials  to  the  manufacturers  thereof.  But  the 
wool-raisers  argued  naturally,  if  protectionism  be  good  for 
woollens,  it  must  also  be  good  for  wools  ;  the  truth  was,  it 
was  equally  baneful  to  both,  and  to  every  other  beneficiary 
of  it  in  the  long  run ;  but  the  wool-workers  had  no  answer 


530  PRINCIPLES    OF   POLITICAL   ECONOMY. 

to  the  simple  logic  of  the  wool-growers,  —  they  gave  their 
case  away  when  they  alleged  that  they  could  not  live  with- 
out government  aid,  —  and  so  they  were  obliged  to  surren- 
der to  their  already  angered  brethren  of  the  fleeces  in  1867, 
and  higher  tariff-taxes  were  put  on  the  woollens  in  order 
to  compensate  the  manufacturers  for  the  anticipated  rise  in 
the  price  of  wools.  Of  course  it  was  supposed  that  the 
patient  people  would  bear  the  now  doubled  burdens  put 
upon  them  by  two  privileged  sets  of  their  fellow-citizens. 
If  protectionist  taxes  made  the  manufacturers  rich,  why 
should  they  not  also  enrich  the  rural  herdsmen  ?  In  short, 
why  may  not  such  taxes  make  everybody  rich  ? 

There  were  those  at  the  time,  and  the  present  writer  was 
one  of  them,  who  foresaw  and  foretold  just  what  has 
actually  happened,  namely,  that  both  allies  in  this  scheme 
of  popular  plunder  were  going  in  to  their  own  death  as 
well  as  in  to  the  impoverishment  of  their  countrymen. 
How  would  any  level-headed  man,  capable  of  seeing  beyond 
the  point  of  his  nose,  have  prognosticated  in  the  premises  ? 
Something  like  this :  it  takes  many  kinds  of  wools  mixed, 
say  six  or  eight,  to  make  the  best  woollen  cloths,  and 
several  kinds  to  make  good  cloths  at  all ;  the  United  States 
could  only  furnish  two  or  three  kinds,  and  these  in  quite 
limited  quantities ;  the  tariff-taxes  would  raise  the  price  of 
the  foreign  wools  by  just  so  much,  to  the  detriment  of  the 
manufacturers,  who  could  no  longer  buy  the  foreign  wools, 
needful  for  good  cloths,  and  must  consequently  drop 
down  to  inferior  cloths  in  their  mills,  using  shoddy  and 
cotton  and  what  not :  how  will  that  affect  the  market  for 
native  wools,  especially  the  fine  Ohio  and  Vermont  wools  ? 
Only  as  the  manufacturers  are  prosperous  in  making  good 
cloths  that  find  a  quick  and  wide  market  at  home,  can  the 
growers  find  a  good  market  for  their  wool ;  from  these 
heavy  taxes  on  their  material  and  machinery  and  lumber 


FOREIGN   TRADE. 


531 


and  dye-stuffs  and  so  on,  the  manufacture  will  surely 
droop,  and  employ  itself  on  poor  goods  from  cheap  mate- 
rials, and  the  market  for  native  fleeces  will  droop  in  conse- 
quence, and  the  prices  of  home-wools  will  go  down  and 
down  and  down  of  necessity. 

Precisely  this  has  happened.  The  gold  prices  of  wool 
were  never  before  so  low  in  this  country  as  since  the 
unholy  alliance  of  1867,  and  as  a  rule  they  have  gone 
down  lower  and  lower  and  lower.  Why?  Because  the 
manufacturers  could  not,  under  the  tax-laws  of  their 
country  which  they  themselves  had  egged  on,  make  the 
cloths  demanding  the  native  fine  wools.  Sheep-raising 
became  unprofitable.  Millions  of  fine-woolled  sheep  were 
slaughtered  in  a  few  years  for  their  pelts  and  mutton  in 
Ohio  alone.  The  following  official  table  from  the  Depart- 
ment of  Agriculture  exhibits  the  relative  number  of  sheep 
in  thirteen  States  of  the  Union,  at  the  two  epochs  22  years 
apart :  — 


States. 

Feb.  1867. 

Feb.  1889. 

Maine       .               

895,884 

547,725 

Vermont     

1,335,980 

365,770 

New  York  

5,373,005 

1,548,426 

.Pennsylvania 

3,456,568 

935  646 

Kentucky 

933,193 

805  978 

Virginia             

700,666 

435  846 

Missouri          

1,005,509 

1,109  444 

Illinois  

2,764,072 

773,468 

Indiana                   

3,033,870 

1,420  000 

Ohio                          

7,159  177 

4  065  556 

Michigan         

4,028  767 

2,134  134 

Wisconsin     

1,664  388 

793,146 

Iowa  

2,399,425 

540,700 

34,750,504 

15,475,839 

The  effect  of  the  tariff-taxes  on  wools,  accordingly,  even 
during  a  period  when  the  population  of  the  country  in- 


532  PRINCIPLES    OF   POLITICAL   ECONOMY. 

creased  65  per  centum,  has  been  to  diminish  the  number  of 
sheep  in  the  hands  of  the  farmers  by  more  than  one-half. 
The  wool  clip  in  the  entire  country  has  indeed  increased 
since  1867,  but  it  has  been  in  Texas  and  on  the  free  ranges 
of  the  extreme  boundaries  of  civilization  in  the  West, 
where  about  one  pound  in  three  of  the  gross  fleece  is  clean 
wool,  and  the  most  favorable  estimate  of  the  present  clip 
would  only  suffice  to  clothe  about  one-half  of  the  people 
of  the  country.  Does  this  look  like  becoming  "  indepen- 
dent "  of  the  rest  of  the  world  in  the  matter  of  woollen 
clothing  for  our  great  People?  Will  our  folks  never  learn 
that  there  is  nothing  "  dependent "  in  Buying  and  Selling, 
that  the  more  any  individual  or  nation  Buys  and  Sells 
the  more  independent  they  become  of  course,  and  that  the 
hermit  in  his  poverty-stricken  cell  is  the  best  image  of 
Protectionism  ? 

The  extra  barriers  heaped  up  in  1867  against  foreign 
woollens  not  only  did  not  lessen  their  importation,  but  in 
connection  with  the  discouragements  thrown  upon  the 
domestic  manufacture  as  just  explained  increased  the  im- 
portations ;  so  that,  in  1877,  imports  of  woollen  goods  stood 
at  125,000,000 ;  and  in  1882  had  increased  to  142,000,000, 
the  latter  being  an  increase  in  one  year,  from  1881,  of  34 
per  centum.  The  people  must  be  clothed  at  some  rate,  and 
many  people  will  have  good  cloth  at  any  cost;  and  the 
whole  result  of  this  imbecile  policy  of  Prohibitions  on  wool 
and  woollens  has  been  demonstrated  right  before  our  eyes, 
(1)  to  kill  off  the  sheep,  (2)  to  compel  the  manufacture 
of  poor  goods,  (3)  to  multiply  foreign  woollens  in  domestic 
use,  and  (4)  to  double  in  general  the  cost  of  clothing  the 
American  People.  It  is  difficult  to  say  whether  the 
grangers  as  a  class,  or  the  manufacturers  as  a  class,  or 
the  consumers  of  woollens,  are  more  put  out  by  this  state 
of  things.  They  are  all  in  the  slough  together,  and  have 


FOREIGN   TRADE.  533 

only  themselves  to  thank  for  their  condition.  And  it  is 
growing  worse  and  worse.  As  a  mere  and  small  example, 
less  than  one-half  the  amount  of  woollen  machinery  is 
now  in  operation  in  Berkshire  County,  Massachusetts,  that 
was  running  here  15  years  ago ;  and  three-fourths  of  all 
the  woollen  manufacturers  doing  business  in  the  County 
have  failed  in  the  20  years  just  now  past.  In  one  word,  it 
is  no  compensation  to  one  industry  for  artificial  burdens  piled 
upon  it,  to  pile  corresponding  burdens  upon  other  industries 
affiliated  with  it.  ALL  LEGITIMATE  INDUSTRIES  EVERY- 
WHERE ARE  INTIMATELY  AFFILIATED  WITH  EACH  OTHER. 
Fallacy  G  :  that  because  some  kinds  of  prosperity  some- 
times accompany  and  follow  after  Protectionism,  therefore 
they  are  caused  by  it.  This  is  at  once  the  commonest 
and  the  hollowest  of  the  forms  of  false  argumentation 
employed  in  this  country  to  bolster  up  a  monstrously 
unjust  Privilege.  The  rapid  growth  of  Chicago,  for  ex- 
ample, in  the  ten  years  following  the  first  imposition  of 
the  Morrill  tariff-taxes,  was  often  referred  to,  as  if  the 
Taxes  caused  the  Growth.  Admitting  for  argument's 
sake,  what  would  be  the  height  of  folly  to  admit  in  reality, 
that  these  Taxes  were  among  the  causes  of  that  Growth, 
how  absurd  to  refer  to  one  antecedent  the  result  of  one 
hundred  or  one  thousand  antecedents !  So  of  the  growth 
of  national  population  in  the  twenty  years  following  the 
Wool  and  Woollens  Tariff  of  1867 :  population  increased 
about  65  per  centum  in  that  interval :  tariff-taxes  on  most 
of  the  necessaries  of  life  increased  in  the  same  interval  just 
about  in  the  same  proportion :  was  there  any  tie  of  Cause 
and  Effect  as  between  the  rise  of  taxes  and  the  rising  tide 
of  population?  Any  tendency  in  the  one  to  bring  the 
other?  Because  one  thing  folloivs  another  in  point  of 
time,  is  that  any  proof  that  the  second  is  the  result  of  the 
other  in  point  of  cause  ? 


534  PRINCIPLES   OF   POLITICAL   ECONOMY. 

In  the  old  classification  of  Logical  Fallacies  this  particu- 
lar one  was  called  by  the  Romans  "  post  hoc  ergo  propter 
hoc,"  that  is,  after  something  therefore  on  account  of  that 
thing.  The  thoughts  and  the  speech  of  civilized  men  have 
always  been  full  of  some  form  of  this  incongruity  of  infer- 
ence ;  but  it  is  the  stock  in  trade,  the  staple  and  body  of 
protectionist  argumentation.  But  it  is  utterly  devoid 
of  any  significance  whatever.  Unless  some  natural  tie  of 
connection  can  be  shown,  as  between  precedent  and  conse- 
quent, unless  it  can  be  probably  shown  that  nothing  but 
the  precedent  could  cause  the  consequent,  unless  taxes 
are  adapted  in  their  very  nature  to  increase  riches,  unless 
repeated  subtractions  can  be  shown  to  be  the  same  thing 
as  multiplied  additions,  then  all  this  sickening  talk  of 
cheapening  prices  and  intensified  activities  and  diffused 
popular  blessings  under  an  odious  scheme  of  subtle  taxes 
that  only  take  and  can  never  give,  is  to  be  treated  with  a 
silent  and  pitying  contempt,  whether  used  by  the  duped 
or  the  duping.  A  good  instance  of  this  empty  form  of 
reasoning,  —  much  better  because  more  uniform  than  any 
one  ever  sought  to  be  applied  in  the  realm  of  Trade,  — 
would  be  this :  the  Day  has  uniformly  followed  after  the 
Night  ever  since  the  dawn  of  Time,  and  therefore  the 
Night  is  the  cause  of  the  Day ! 

It  has  been  indeed  hard  work  to  destroy  the  commerce 
utterly  of  a  great  People  by  legal  restraints  however  mul- 
tiplied and  by  mountain-barriers  however  piled  up,  and 
some  prosperity  has  pushed  itself  into  prominence  after  all 
these  and  in  spite  of  all  these.  Behold !  cry  the  logical 
protectionists,  behold  in  such  prosperity  the  effects  of  our 
beautiful  legislation !  Immeasurable  areas  of  fertile  land 
to  be  had  by  all  Immigrants  for  the  asking;  endless 
deposits  on  every  hand  of  coal  and  of  all  the  useful  and 
precious  metals;  primeval  forests  and  streams  leaping 


FOREIGN  TRADE.  535 

with  power  from  their  mountain  springs  to  mill-wheel  and 
intervale ;  commodious  land-locked  ocean  harbors  on  every 
side  but  one,  and  vast  chains  of  inland  "  unsalted  seas  " ; 
a  salubrious  climate,  and  an  ingenious,  well-trained  people  ; 
self-organized  and  liberal  governments,  guaranteeing  all 
rational  liberties  to  the  people —  but  one ;  all  these  ante- 
cedents and  accompaniments  go,  as  it  were,  for  nothing  in 
the  minds  and  on  the  tongues  of  some  of  our  citizens,  as 
causes  of  accruing  prosperity,  in  comparison  with  (as  a 
cause)  the  commercial  bondage  at  the  one  point  possible 
under  our  liberal  and  blessed  institutions. 

These  are  seven  of  the  fundamental  Falsities  of  Protec- 
tionism. They  might  easily  be  made  seven  times  seven, 
and  even  seventy  times  seven.  But  not  one  of  them  is  to 
be  forgiven.  They  are  unpardonable  sins  against  Science 
and  Liberty  and  Progress.  Any  radical  and  comprehen- 
sive Falsehood,  like  Protectionism,  practically  contradicts 
the  Truth  at  innumerable  points.  The  test  of  any  pro- 
posed truth  is  its  harmony  with  other  and  acknowledged 
truths :  the  test  of  any  suspected  error  is  its  contradiction 
to  such  truths.  Enough  has  now  been  said  to  settle  the 
place  of  any  pretended  right  of  a  part  of  the  people  com- 
mercially to  enslave  the  other  part,  and  ultimately  them- 
selves also. 

It  only  remains  in  this  chapter,  in  the  fourth  place,  to 
indicate  briefly  at  a  few  points  the  course  of  OPINIONS 
in  relation  to  commercial  Restrictions  and  Prohibitions  in 
general,  such  as  exist  at  present  in  their  most  exaggerated 
forms  within  the  United  States,  on  the  part  of  those  best 
entitled  by  study  and  intellect  and  opportunity  to  form 
and  formulate  a  candid  judgment  in  such  matters. 

In  respect  to  the  personal  motive  and  circumstances  of 
those  combining  to  frame  such  legal  interferences  with  the 
natural  liberty  of  their  contemporaries,  and  the  inevitable 


536  PRINCIPLES   OF   POLITICAL   ECONOMY. 

results  of  them,  we  will  quote  first  from  Sir  Thomas  More, 
a  man  of  men,  in  his  Utopia,  written  in  1516.  "The  rich 
are  ever  striving  to  pare  away  something  further  from  the 
daily  wages  of  the  poor  by  private  fraud,  and  even  by  public 
laws ;  so  that  the  wrong  already  existing,  for  it  is  a  wrong 
that  those  from  whom  the  State  derives  most  benefit  should 
receive  least  reward,  is  made  yet  greater  by  means  of  the  law 
of  the  State.  It  is  nothing  but  a  conspiracy  of  the  rich 
against  the  poor.  The  rich  devise  every  means  by  ivhich  they 
may  in  the  first  place  secure  to  themselves  what  they  have 
amassed  by  wrong,  and  then  take  to  their  own  use  and  profit 
at  the  lowest  possible  price  the  work  and  labor  of  the  poor. 
And  so  soon  as  the  rich  decide  on  adopting  these  devices  in 
the  name  of  the  public,  then  they  become  law.  The  life  of 
the  labor-class  becomes  so  wretched  in  consequence  that  even  a 
beast's  life  seems  enviable." 

The  utter  folly  of  supposing  that  a  Parliament  or  a 
Congress  or  a  Committee  of  either  is  fit  to  determine,  or  to 
have  any  voice  in  deciding,  what  shall  or  what  shall  not  be 
manufactured  or  grown,  what  shall  or  what  shall  not  be 
exported  and  imported,  was  never  more  happily  exposed 
than  by  Adam  Smith  in  his  Wealth  of  Nations,  pub- 
lished in  1776.  "  The  statesman  who  should  attempt  to 
direct  private  people  in  what  manner  they  ought  to  employ 
their  capitals,  would  not  only  load  himself  with  a  most 
unnecessary  attention,  but  would  assume  an  authority  which 
could  be  safely  trusted  not  only  to  no  single  person,  but  to  no 
council  or  senate  whatever,  and  which  would  noivhere  be  so 
dangerous  as  in  the  hands  of  a  man  who  had  folly  and  pre- 
sumption enough  to  fancy  himself  fit  to  exercise  it." 

Alexander  Hamilton,  our  first  Secretary  of  the  Treasury, 
and  in  some  respects  the  most  brilliant  of  all  our  statesmen, 
has  often  been  claimed  and  referred  to  as  a  protectionist  by 
those  unfamiliar  with  his  writings ;  but  the  paragraph  of 


FOREIGN  TRADE.  537 

those  writings,  or  the  phrase  of  any  authenticated  conver- 
sation of  his,  has  never  been  quoted  and  never  can  be, 
because  they  do  not  exist,  which  proves  him  to  have  been 
a  "  protectionist "  in  the  modern,  or  any  other  proper, 
sense  of  that  word.  On  the  contrary,  his  deliberate  and 
well-founded  opinion  in  the  premises  is  given  at  length 
in  number  XXXV  of  the  Federalist,  this  number  printed 
early  in  1788 :  "  Exorbitant  duties  on  imported  articles  serve 
to  beget  a  general  spirit  of  smuggling  ;  which  is  always  preju- 
dicial to  the  fair  trader,  and  eventually  to  the  revenue  itself: 
they  tend  to  render  other  classes  of  the  community  tribu- 
tary, in  an  improper  degree,  to  the  manufacturing  classes, 
to  whom  they  give  a  premature  monopoly  of  the  markets: 
they  sometimes  force  industry  out  of  its  most  natural  channels 
into  which  it  flows  with  less  advantage  ;  and  in  the  last  place, 
they  oppress  the  merchant,  who  is  often  obliged  to  pay  them 
himself  without  any  retribution  from  the  consumer.  When 
the  Demand  is  equal  to  the  quantity  of  goods  at  market,  the 
consumer  generally  pays  the  duty ;  but  when  the  markets 
happen  to  be  overstocked,  the  great  proportion  falls  upon  the 
merchant,  and  sometimes  not  only  exhausts  his  profits,  but 
breaks  in  upon  his  capital.  I  am  apt  to  think,  that  a  division 
of  the  duty  between  the  seller  and  the  buyer  more  often  hap- 
pens than  is  commonly  imagined.  There  is  no  part  of  the 
administration  of  the  Grovefnment  that  requires  extensive 
information,  and  a  thorough  knowledge  of  the  principles  of 
Political  Economy,  so  much  as  the  business  of  taxation.  The 
man  who  understands  those  principles  best,  will  be  least  likely 
to  resort  to  oppressive  expedients,  or  to  sacrifice  any  particu- 
lar class  of  citizens  to  the  procurement  of  revenue.  It  might 
be  demonstrated  that  the  most  productive  system  of  finance 
ivill  ahuays  be  the  least  burdensome"  1 

1  There  were  two  other  authors  of  some  of  the  papers  of  the  Federalist, 
Madison  and  Jay  ;  but  Hamilton's  authorship  of   number  XXXV  was 


538  PRINCIPLES   OF   POLITICAL  ECONOMY. 

Shrewd  old  Benjamin  Franklin,  impersonation  of  com- 
mon sense  and  common  honesty,  ridicules  in  his  sly  way 
the  whole  wretched  business  in  the  columns  of  the  "  Penn- 
sylvania Gazette  "  in  1789.  "  I  am  a  manufacturer,  and 
was  a  petitioner  for  the  act  to  encourage  and  protect  the 
manufacturers  of  Pennsylvania.  I  ivas  very  happy  when 
the  act  was  obtained,  and  I  immediately  added  to  the  price 
of  my  manufacture  as  much  as  it  would  bear,  so  as  to  be  a 
little  cheaper  than  the  same  article  imported  and  paying  the 
duty.  By  this  addition  I  hoped  to  grow  richer.  But  as 
every  other  manufacturer,  whose  wares  are  under  the  protec- 
tion of  the  act,  has  done  the  same,  I  begin  to  doubt  whether, 
considering  the  whole  yearns  expenses  of  my  family,  with  all 
these  separate  additions  which  I  pay  to  other  manufacturers, 
I  am  at  all  the  gainer.  And  I  confess,  1  cannot  but  wish 
that,  except  the  protecting  duty  on  my  own  manufacture,  all 
duties  of  the  kind  were  taken  off  and  abolished." 

In  the  first  congressional  debate  on  the  Tariff  after  the 
new  Government  went  into  operation,  that  is,  in  1789, 
Fisher  Ames  of  Massachusetts,  who  had  just  before  made 
the  strongest  plea  against  the  Molasses  Tax,  the  raw  ma- 
terial of  New  England  rum,  became  also  the  strongest 
stickler  there  for  the  protectionist  view,  that  artificial 
manufactures  may  properly  enough  fasten  and  fatten 
upon  Agriculture,  like  shell-fish  upon  ship-bottoms,  and 
went  to  the  root  of  the  whole  matter  of  that  inevitable 
antagonism  in  a  few  frank  and  radical  words,  the  best 
because  the  most  truthful  words  that  can  be  found  upon 
that  side  in  the  century  that  has  followed.  "From  the 
different  situation  of  the  manufacturers  in  Europe  and 
America,  encouragement  is  necessary.  In  Europe,  the  arti- 
san is  driven  to  labor  for  his  bread.  Stern  necessity,  with 

never  questioned  by  anybody;  he  himself  claimed  it  expressly  with  his 
other  numbers  a  few  days  before  he  was  shot. 


FOREIGN   TRADE.  539 

her  iron  rod,  compels  his  exertion.  In  America,  invitation 
and  encouragement  are  needed.  Without  them,  the  infant 
manufacture  droops,  and  those  who  might  be  employed  in 
it  seek  with  success  a  competency  from  our  cheap  and  fertile 


Gouverneur  Morris,  cme  of  the  youngest  and  among  the 
most  gifted  of  the  Revolutionary  statesmen,  had  a  clear 
insight  into  Economic  realities.  "Whatever  saves  Labor 
rewards  Labor"  "  Those  who  will  give  the  most  for  money, 
in  other  words,  those  who  will  sell  cheapest,  will  have  the 
most  money."  "  Taxes  can  be  raised  only  from  revenue  : 
push  the  matter  further,  and  their  nature  is  changed  :  it  is 
no  longer  taxation,  it  is  confiscation" 


540  PRINCIPLES  OF  POLITICAL  ECONOMY. 


CHAPTER   VII. 

TAXATION. 

POLITICAL  ECONOMY  is  the  Science  of  Buying  and  Sell- 
ing. It  must  include  of  course  in  its  discussions  the 
Motives,  the  Methods,  the  Obstacles,  the  Rewards,  relating 
to  Sales,  which  are  themselves  first  to  be  defined  as  fur- 
nishing the  sole  Field  of  the  Science.  We  have  now  gone 
through  with  painstaking  all  of  these  topics  in  order,  but 
we  have  not  yet  fairly  struck  Taxation,  which  is  indeed  in 
all  its  forms  an  obstacle  to  Sales,  and  in  some  of  them  the 
annihilation  of  Sales,  but  which  in  its  nature  is  something 
much  more  than  an  obstacle,  namely,  a  Condition  of  some- 
thing higher  than  itself.  In  the  very  strictest  sense  of  the 
terms,  Taxation  is  not  a  part  of  the  Science  of  Political 
Economy,  because  it  is  not  an  essential  part  of  any  one  of 
those  natural  processes  by  which  men  buy  and  sell  arid  get 
gain.  It  is  rather  a  Condition  through  Government  of  the 
successful  ongoing  of  all  those  processes.  There  cannot 
be,  therefore,  a  science  of  Taxes,  as  there  is  unquestionably 
a  science  of  Sales.  The  facts  of  Taxes  are  artificial  and 
governmental,  the  facts  of  Sales  are  natural  and  original. 

All  forms  of  Production,  as  we  have  now  seen,  go 
forward  in  accordance  with  positive  natural  forces  and 
motives,  which  God  has  appointed,  and  which  men  have 
a  natural  impulse  to  ascertain  and  generalize  and  profit 
by;  for  it  is  Nature  bids  men  work  and  save,  buy  and 
sell,  invent  and  transport,  navigate  and  grow  rich ;  but 


TAXATION.  541 

Nature  has  given  no  whisper  anywhere,  at  least  that  we 
can  hear,  about  any  Taxes.  That  is  the  work  of  Society. 
That  seems  to  be  something  negative,  not  positive,  so  far 
as  Buying  and  Selling  is  concerned.  Taxation  is  indeed 
something  necessary  to  the  social  order,  as  men  are  ;  it 
furnishes  means  of  defence  against  greater  evils  than  itself 
is ;  but  in  itself  considered,  it  is  an  economic  evil,  because 
it  takes  away  from  exchangers  a  part  of  the  gains  of  their 
exchanges  ;  strictly  speaking,  therefore,  it  cannot  be  made 
a  part  of  Economic  Science. 

But,  on  the  other  hand,  as  we  shall  see  at  length  in  the 
exposition  that  follows,  all  the  relations  of  Taxation  from 
the  beginning  to  the  end  are  so  ultimately  connected  with 
Exchanges,  are  so  founded  on  and  limited  by  Exchanges, 
its  true  principles  are  so  exclusively  economical,  and  its 
abuses  are  so  instantly  and  constantly  harmful  to  all  the 
ongoings  of  natural  and  profitable  Trade,  that  Taxation 
must  always  be  treated  as  if  it  were  a  part  of  Economics. 
The  latter  is  a  science,  the  former  is  an  art ;  but  the  art  is 
almost  exclusively  dependent  upon  the  principles  of  this 
one  science  ;  and  a  comprehensive  treatise  on  the  science, 
accordingly,  must  exhibit  all  its  main  bearings  upon  those 
practical  rules  of  Taxation,  which  are  so  vital  to  the  hap- 
piness and  prosperity  of  any  People.  All  scientific  Econo- 
mists, therefore,  have  considered  the  subject  of  Taxes  to 
lie  within  their  legitimate  beat.  They  have,  however, 
justified  the  inclusion  upon  very  different  grounds,  one 
from  another ;  and  so  far  as  now  appears,  the  present  writer 
was  the  first  technical  Economist  to  disclaim  in  the  name 
of  his  Science  direct  jurisdiction  over  Taxation. 

A  careful  discussion  of  a  series  of  distinct  though  related 
Questions  belonging  to  Taxes  will  exhibit  the  whole  prac- 
tical matter  in  the  light  of  well-established  principles  of 
economical  Science. 


542  PRINCIPLES   OF   POLITICAL   ECONOMY. 

1.  What  is  the  fundamental  GROUND  of  Taxes?  Gov- 
ernment is  an  essential  prerequisite  to  any  general  and  sat- 
isfactory Exchanges,  since  it  contributes  by  direct  effort 
to  the  security  of  person  and  property ;  and  justly  claims, 
therefore,  from  each  citizen  a  compensation  in  return  for 
the  Services  thus  rendered  to  him.  We  do  not  mean  to 
say  that  government  exists  solely  for  the  protection  of 
person  and  property,  or  that  all  the  operations  of  govern- 
ment are  to  be  brought  down  within  the  sphere  of  exchange, 
for  government  exists  as  well  for  the  improvement  as  for 
the  protection  of  society,  and  many  of  its  high  functions 
are  moral,  to  be  performed  under  a  lofty  sense  of  responsi- 
bility to  God  and  to  future  ages ;  nor  do  we  mean  to  say 
that  government  has  not  also  a  deep  ground  for  its  exist- 
ence, in  virtue  of  which  it  may  on  extraordinary  occasions 
demand  all  the  property  of  all,  and  even  the  lives  of  some, 
of  its  citizens ;  but  we  do  mean  to  say  that,  whatever  may 
be  conceded  as  the  ultimate  ground  of  government,  the 
matter  of  taxation,  by  which  government  is  outwardly  and 
ordinarily  supported,  and  by  which  it  takes  to  itself  a  part 
of  the  gains  of  every  man's  industry,  finds  a  ready  and 
solid  justification  in  the  common  principles  of  Exchange. 
If,  as  far  as  the  tax-payer  is  concerned,  the  exchange  does 
not  seem  to  be  voluntary,  on  a  closer  analysis  it  is  seen  to 
be  really  voluntary ;  for  in  effect  the  people  organize  gov- 
ernment for  themselves,  and  voluntarily  support  it,  and 
there  is  no  government  separate  from  the  will  of  the  people. 

In  a  very  important  sense,  accordingly,  a  tax  paid  is  a 
reward  for  a  service  rendered.  The  service  which  govern- 
ment renders  to  Production  by  its  laws,  courts,  and  officers, 
by  the  force  which  it  is  at  all  times  ready  to  exert  in  behalf 
of  any  citizen  or  the  whole  society  when  threatened  with 
evil  in  person  or  property,  is  rendered  somewhat  on  the 
principle  of  division  of  labor,  one  set  of  agents  devoting 


TAXATION.  543 

themselves  to  that  work ;  and,  notwithstanding  some  cry- 
ing abuses  of  authority  which  no  constitution  or  public 
virtue  has  yet  been  found  adequate  wholly  to  avert,  is  ren- 
dered on  the  whole  economically  and  satisfactorily.  Taxes, 
therefore,  demanded  of  citizens  by  a  lawful  government 
which  tolerably  performs  its  functions,  are  legitimate  and 
just  on  principles  of  Exchange  alone. 

2.  What  is  the  SOURCE  out  of  which  Taxes  are  actually 
paid?  The  answer  is,  out  of  the  gains  of  Exchanges  of 
some  sort.  Gifts  aside,  and  thefts  which  are  out  of  the 
question,  no  man  ever  did,  no  man  ever  can,  pay  his  taxes, 
except  out  of  the  gains  of  some  sales  which  he  has  already 
made.  Even  the  man  who  lives  wholly  on  the  interest  of 
his  money  must  make  a  true  exchange  in  lending  it  (a 
credit  transaction),  and  must  already  have  gotten  his 
return-service  in  interest,  before  he  can  pay  his  taxes  ;  per- 
sonal and  professional  servants  must  receive  their  wages, 
the  outcome  of  exchanges,  before  they  can  possibly  pay 
their  taxes ;  and  men  can  realize  nothing  for  taxes  or  other 
payments  from  their  farms  or  foundries  or  stocks  in  trade 
except  as  they  sell  either  them  or  their  products.  The 
more  sales,  the  more  gains,  and  the  greater  reservoir 
whence  taxes  may  be  drawn.  Political  Economy,  as  the 
vindicator  of  sales,  as  the  defender  of  all  legitimate  gains 
whatsoever,  is  the  best  possible  friend  of  tax-payers  and 
tax-gatherers  as  such.  Whatever  thought  or  force  restricts 
sales,  makes  it  pro  tanto  the  harder  to  pay  and  collect 
taxes,  so  much  the  harder  for  a  government  to  keep  its 
head  above  water  and  reach  the  ends  of  its  being. 

It  follows  from  all  this,  by  a  necessary  inference,  that 
the  annual  Taxes  of  any  country  must  come  out  of  the 
annual  Earnings  of  the  people  of  that  country,  using  the 
word  "  earnings  "  in  its  general  and  proper  sense.  The 
greater  the  earnings  per  capita,  the  easier  are  the  taxes 


544  PRINCIPLES    OF   POLITICAL   ECONOMY. 

paid.  Sir  Richard  Temple  read  an  address  not  long  since 
in  the  Section  of  Economic  Science  and  Statistics  of  the 
British  Association,  some  of  whose  results  are  not  only 
interesting  but  also  astonishing.  For  instance,  taking  the 
whole  population  of  the  United  Kingdom  (England,  Scot- 
land, and  Ireland),  without  division  into  classes,  he  demon- 
strates that  the  average  of  yearly  earnings  per  head  of  the 
population  is  £35  4s.,  or  $  171.28.  This  exceeds  the  average 
earnings  in  the  United  States  by  30%,  £27  4s.  :£  35  4s. 
It  exceeds  also  the  average  on  the  Continent  of  Europe  by 
95%,  £18  Is.  :£35  4s.  It  falls  below  that  of  Australia 
only,  £43  4s. :  £35  4s,  or  19%  less.  Canada's  average 
earnings  per  capita  are  1126.80,  or  5%  less  than  those  in 
the  United  States,  £27  4s. :  £26  18s.  According  to  the 
same  unimpeachable  authority  in  the  same  paper,  the 
annual  income  from  investments  is  in  Great  Britain  and 
the  United  States  as  nearly  as  possible  one-seventh  of  the 
aggregate  Property  in  each  (all  kinds),  or  14%.  In 
Canada  and  Australia,  18%  and  22%  respectively.  Un- 
doubtedly the  most  profitable  country  in  the  world  at 
present  is  Australia,  and  Great  Britain  stands  next.  The 
only  apparent  reason  why  the  United  States,  whose  nat- 
ural resources  of  every  kind  are  vastly  superior  to  either, 
takes  the  third  rank  is,  that  profitable  exchanges  here  are 
forcefully  suppressed  by  law,  and  that  to  an  enormous 
extent,  neutralizing  natural  resources  and  glorious  oppor- 
tunities for  easily  acquired  and  widespread  gains.  This 
violent  suppression  of  commerce  by  national  legislation 
makes  it  just  so  much  the  harder  for  any  man  to  pay  his 
taxes,  whether  these  be  due  to  Nation,  State,  or  Munici- 
pality. If  the  reservoir  be  diminished  the  flow  from  it 
through  every  pipe  becomes  feebler. 

3.   In  what  PROPORTION  ought  the  individual  citizens  to 
contribute  to  the  fund  annually  necessary  to  be  raised  by 


TAXATION.  545 

Taxation  ?  The  usual  answer  has  been,  that  a  man  should 
be  taxed  according  to  his  Property.  That  is  the  radically 
correct  answer,  though  most  who  have  given  it  have  not 
understood  clearly  the  meaning  of  the  word  property.  We 
have  already  seen  that  the  ultimate  idea  of  property  is  the 
power  and  right  to  render  services  in  exchange,  and  denned 
it  as  anything  that  can  be  bought  and  sold.  Robinson 
Crusoe,  while  solitary  upon  his  island,  did  not  and  could 
not  have  property,  in  the  true  sense  of  that  word.  It  is 
not  the  fact  of  appropriation  that  makes  anything  property ; 
it  is  not  the  fact  that  a  man  has  made  it  or  transformed  it, 
that  makes  anything  property ;  it  is  not  the  fact  that  a 
man  may  rightfully  give  it  away,  that  makes  anything 
property ;  but  it  is  the  fact  that  a  man  has  something,  no 
matter  what  it  is,  for  which  something  else  may  be  obtained 
in  exchange,  that  makes  that  something  property,  and  gives 
government  the  right  to  tax  it.  In  other  words,  property 
consists  in  Values,  in  a  purchasing-power,  and  not  in  pos- 
session, or  in  appropriation,  or  in  the  esteem  in  which  a 
man  holds  anything  he  has  as  long  as  it  is  his  own. 

The  test  of  property  is  a  sale ;  that  which  will  bring 
something  when  exposed  for  exchange  is  property;  that 
which  will  bring  nothing,  either  never  was,  or  has  now 
ceased  to  be,  distinctively  property.  This  view  may  not 
seem  to  be  as  novel  as  it  is,  or  it  may  be  prejudiced  by  its 
very  novelty,  but  at  any  rate  it  carries  along  with  it  that 
strongest  of  the  criteria  of  truth,  that  it  simplifies  and  illu- 
mines a  confused  section  of  the  field  of  human  thinking ; 
and  at  the  same  time  justifies  a  practice  which  governments 
have  reached,  as  it  were  through  instinct,  the  practice, 
namely,  of  taxing  men  who  have  neither  real  estate  nor 
chattels,  on  their  incomes  from  industry  and  from  credits. 

To  the  general  question,  then,  in  what  proportions  shall 
the  citizens  contribute  in  taxes  to  the  support  of  govern- 


546  PRINCIPLES   OF   POLITICAL   ECONOMY. 

ment,  the  general  answer  comes,  that  they  ought  to 
contribute  in  proportion  to  the  gains  of  their  exchanges,  of 
whatever  kind  they  may  be.  The  farm,  the  foundry,  the 
mill,  the  railroad,  the  real  estate  of  every  name ;  personal 
property  of  every  kind;  and  personal  acquirements  and 
efforts  of  all  descriptions,  best  appear,  for  the  purposes  of 
taxation,  through  the  gains  realized  by  means  of  them.  If, 
for  any  reason,  any  of  these  become  unproductive,  taxes 
should  cease  to  be  derived  from  them ;  indeed,  must  cease 
to  be  derived  from  them,  because  their  owners  can  no 
longer  pay  by  virtue  of  them.  It  may  be  objected  that 
lands,  for  example,  presently  unproductive,  may  be  held 
untaxed  under  this  principle,  held  for  the  sake  of  a  pro- 
spective rise  of  price.  Very  well ;  when  they  are  sold  at  a 
profit,  let  the  owner  be  taxed  on  that  profit :  it  will  be  time 
enough  then,  especially  as  men  do  not  like  to  hold  unpro- 
ductive forms  of  property.  It  may  also  be  objected,  that, 
under  this  principle,  wages,  the  result  of  personal  and 
professional  exertion,  would  be  taxed  just  the  same  as 
profits  and  rents,  the  result  of  previously  accumulated 
property.  Very  well ;  they  ought  to  be  so  taxed.  Can 
anybody  give  a  solid  reason  why  they  ought  not  to  be  so 
taxed  ?  One  may  say,  that  a  professional  man  earning  a 
large  income,  on  which  taxes  are  paid  the  same  as  on  a  simi- 
lar income  of  a  land  proprietor,  dying,  leaves  to  his  children 
no  further  means  of  earning,  while  the  land-proprietor, 
dying,  does  leave  such  means.  Granted ;  but  the  land  in- 
come continues  to  pay  taxes,  while  that  professional  income 
does  not !  Other  members  of  the  profession  will  do  the 
business  which  the  former  one  would  have  done  had  he 
lived,  and  they  will  pay  taxes  on  the  income  from  it. 
What  a  man  transmits  to  his  children,  whether  a  great 
name  or  a  great  estate,  has  nothing  to  do  with  the  amount 
of  taxes  that  he  ought  to  pay  while  he  lives. 


TAXATION.  547 

There  is  an  illusion  about  lands  and  real  property 
that  needs  to  be  dissipated  before  men  will  understand 
clearly  the  whole  matter  of  Taxation.  Without  constant 
watchfulness  and  foresight,  without  constant  efforts  in 
improvements  and  repairs,  almost  every  form  of  realized 
property  will  rapidly  deteriorate  and  become  unproductive. 
Land  even  in  Great  Britain,  where  land  is  scarce,  is  only 
worth  about  twenty-five  years'  rent;  and  without  the 
exercise  of  intelligence  and  will  property  ceases  to  be. 
Property  has  its  birth  in  services  exchanged;  services  ex- 
changed give  rise  to  gains  ;  taxes  can  only  be  paid  out  of 
these  gains  ;  they  ought  to  be  proportioned  to  the  amount  of 
these  gains  without  any  reference  to  the  class  of  exchanges 
producing  them  ;  while  the  right  to  tax  on  the  part  of  the 
government  is  connected  with  a  service  rendered  by  govern- 
ment, and  both  grows  out  of  and  is  limited  by  the  right  to 
exchange  on  the  part  of  the  citizens.  These  considerations, 
though  they  may  exclude  the  propriety  of  a  poll-tax,  are 
consistent  with  most  other  forms  of  taxation,  and  give 
unity  to  them. 

4.  Does  it  not  follow  from  all  the  preceding,  that  a  single 
and  universal  INCOME-TAX  would  prove  the  best  form  of 
what  is  in  its  own  nature  a  subtraction  from  the  gains 
of  the  governed  for  the  maintenance  of  Government?  If 
the  approximate  amount  of  Income  could  in  all  cases  be 
ascertained,  and  if  no  other  form  of  tax  were  levied  upon 
the  same  persons,  this  would  seem  to  be  a  perfectly  unex- 
ceptionable mode  of  Taxation.  The  only  sources  of  Income 
are  three :  Wages,  Profits,  Rents.  It  does  not  seem  that 
gifts  are  legitimately  taxable ;  they  lie  outside  the  field 
of  exchange ;  they  spring  from  sympathy,  from  benevo- 
lence, from  duty  ;  and  while  exchange  must  claim  all  that 
fairly  belongs  to  it,  it  must  be  careful  not  to  throw  dis- 
couragements into  the  adjacent  but  distinct  fields  of 


548  PRINCIPLES    OF   POLITICAL   ECONOMY. 

morals.  Hence,  it  may  well  be  questioned  whether  legacies, 
bequeathments,  gifts  to  charitable  and  educational  institu- 
tions, and  gifts  to  individuals  proceeding  from  friendship, 
gratitude,  or  other  such  impulse,  are  properly  subject  to 
taxation.  The  property  is  taxable  in  the  hands  of  the 
donor,  and  may  be  in  the  hands  of  the  recipient,  but  the 
passage  from  one  to  the  other  ought  to  be  unobstructed  by 
a  tax.  Gifts,  then,  excepted,  and  plunder,  which  is  out  of 
the  question,  the  sources  of  income  are  few  and  simple, 
and  there  is  no  great  difficulty  in  every  man  ascertaining 
about  what  his  annual  income  is.  Because  this  income, 
exactly  ascertained,  exactly  measures  the  gains  of  his 
exchanges  for  that  year,  a  tax  upon  that  income  is  the 
fairest  of  all  possible  forms  of  taxation,  and  might  be  made 
with  advantage,  in  time,  to  supersede  all  other  forms. 

Superficial  objections  may  be  easily  raised,  and  are 
raised  constantly  in  the  United  States,  against  any  form 
of  an  income-tax.  Reference  is  often  had  to  our  national 
experience  with  such  a  tax  during  and  just  after  the  late 
Civil  War.  The  truth  is,  that  tax  was  thrown  on  in  addi- 
tion to,  and  in  no  proper  relations  with,  a  large  number 
of  other  national  taxes  of  all  sorts,  good  and  bad ;  it  was 
no  possible  experiment  in  Taxation,  because  there  was  no 
opportunity  of  watching  its  operation  separate  from  that 
of  other  and  confused  forms ;  industry  of  all  kinds  was 
demoralized  by  the  war,  and  still  more  by  a  depreciated 
and  abominable  paper  money  made  legal  tender  for  all 
debts  ;  and  the  tax  became  unpopular  in  influential  quar- 
ters for  certain  reasons  not  inherent  in  the  nature  of  the 
tax,  and  was  discontinued  in  consequence.  In  order  to  be 
fairly  tested,  an  income-tax  should  either  be  exclusive,  all 
other  taxes  being  intermitted  for  the  time  being ;  or  at 
least  levied  simply  in  itself  in  connection  with  a  few  other 
simple  taxes,  each  of  which  can  be  watched  in  its  in- 
cidence and  results  separately  from  the  others. 


TAXATION.  549 

Great  Britain  derives  its  national  revenues  almost  wholly 
from  five  sources;  namely,  (1)  Excises,  say  £27,000,000 
annually;  (2)  Customs,  say  £20,000,000  ;  (3)  Incomes,  say 
£12,000,000;  (4)  Stamps,  say  £12,000,000;  (5)  Postals,  say 
£9,000,000.  The  remaining,  say  £10,000,000,  come  from 
miscellaneous  sources.  One  feature  of  the  English  Income- 
tax  is,  that  it  is  varied  from  time  to  time  according  to  pre- 
vailing national  needs,  the  rate  having  been  lifted  from  2c?. 
to  166?.  per  pound  of  income,  according  to  estimated  expendi- 
tures. In  1857,  it  realized  in  our  money  $80,255,000.  In 
1866,  the  largest  year,  our  own  national  income-tax  realized 
160,894,135.  By  varying  the  rate  to  the  pound  of  income 
according  to  the  prospective  wants  of  the  Exchequer,  the 
English  have  found  for  about  forty  years  their  income-tax 
to  be  the  most  uniform,  unfailing,  expansive,  and  respon- 
sive to  control,  of  all  their  fiscal  expedients. 

The  Prussians,  too,  are  applying  an  income-tax  as  a 
means  of  raising  revenue  with  good  success.  There,  as 
in  England  it  is  somewhat  complicated  with  other  kinds 
of  taxes,  and  cannot  exhibit  itself  altogether  in  its  own 
nature  as  if  it  were  exclusive,  such  as  all  scientific  econo- 
mists would  like  to  see  it  tried  somewhere  on  a  large  scale ; 
and  the  Germans  have  a  different  method  from  the  English, 
of  making  the  tax  more  or  less  flexible  as  circumstances 
vary.  The  English  change  the  rate  of  the  tax  to  the  unit 
of  income :  the  Germans  graduate  the  tax  to  different 
classes  of  income-receivers.  For  example,  those  persons 
having  an  income  between  420  and  660  marks  a  year  pay 
84  pennies  {pfewrdge)  as  income-tax ;  persons  in  the  next 
higher  class  pay  164  pennies  a  year ;  those  in  the  class, 
whose  maximum  income  is  6000  marks,  pay  44  marks  and 
80  pennies  a  year ;  and  all  persons  whose  income  does 
not  rise  above  420  marks  are  not  subject  to  this  tax.  O:i 
account  of  hard  times  a  few  years  ago,  Bismarck  brought 


550  PRINCIPLES   OF  POLITICAL   ECONOMY. 

it  about,  that  all  the  classes  included  between  420  and  6000 
marks  of  income  should  be  wholly  exempted  fcom  one- 
quarter's  taxes.  A  mark  is  23.82  of  our  cents ;  and  a 
pfennig  is  one-hundredth  of  a  mark. 

Besides  the  complete  harmony  of  an  Income-tax  with 
the  general  principles  of  Taxation,  as  already  unfolded, 
it  has  several  specific  advantages  over  other  forms  of 
Taxes. 

a.  It  has  no  tendency  to  disturb  prices.     Were  there  no 
taxation  except  on    Incomes,  and  were   all   the  incomes 
rightly  ascertained,  the  prices  of  everything  would  be  just 
as  if  there  were  no  taxes  at  all.     Taxation  would  then  be 
like  the  atmosphere,  pressing  equally  on   all  points  and 
consciously  on   none.     It   is  through  tricks  wrought  on 
Prices,  that  the  greatest  and  most  widely  spread  injustices 
have  been  done  and  suffered  in  this  country  during  the 
past  thirty  years  :  a  depreciated  Money,  whether  of  paper 
or  silver,  raises  some  prices  and  not  others,  and  some  prices 
before  others,  and  thus  distributes  its  mischiefs  unequally ; 
protectionist   tariff-taxes  play  of   design   fantastic   tricks 
with   prices,   raising   some    and   depressing   others,    thus 
working  monstrous  injustice  on  a  vast  scale ;  and  almost 
all  forms  of  taxation  become  unequal  and  unjust  through 
their  diverse  action  on  Prices.     But  a  universal  Income- 
tax   exclusive    of   all   others,   properly   levied   and   fully 
responded  to  by  the  payers,  would  have  no  influence  at 
all  upon   prices,  could   by  no    possibility  work  essential 
injustice,  and  would   be    certain    to   be  very  productive 
without  becoming  burdensome. 

b.  A  second  great  advantage  of  such  an  Income-tax  in 
such  a  country  as  this,  would  manifestly  be,  that  all  men 
would  be  obliged  to  keep  exact  pecuniary  accounts ;  more 
orderly   methods    of    Business   would    generally   prevail ; 
most   men  would   know   much  better  than  they  do  now 


TAXATION.  551 

how  they  stand  themselves,  and  whom  of  others  to  safely 
trust;  sudden  commercial  failures,  indeed  failures  at  all, 
would  be  less  frequent  and  severe  ;  and  everything  in  the 
business  world  would  be  more  aboveboard  and  better 
known. 

c.  A  third  advantage  of  such  an  Income-tax,  and  the 
chief,  would  be  its  tendencies  to  fiscal  simplicity.  Com- 
plexities in  the  Exchequer  are  always  and  in  many  ways 
expensive  to  the  People.  In  this  country,  where  distinct 
taxes  have  to  be  paid,  first  to  the  local  municipality,  then 
to  the  State,  and  last  to  the  Nation,  Income-taxes,  were  all 
others  abolished,  would  have  this  striking  advantage,  that 
the  local  municipality  might  best  ascertain  the  incomes  of 
all  its  legal  residents  once  for  all,  no  matter  from  what 
sources  local  or  other  the  incomes  be  derived ;  and,  having 
collected  its  own  local  per  centum,  the  State  and  then  the 
Nation  would  each  have  to  collect  an  additional  per  centum 
on  the  same  income  for  themselves.  Or,  better  still,  by 
an  amicable  arrangement,  neither  party  yielding  up  its 
inherent  right  to  tax,  one  set  of  officials  might  ascertain 
the  incomes  and  also  collect  the  tax  for  all  three  govern- 
ments once  for  all.  It  may  be  long,  it  doubtless  will  be, 
before  we  shall  ever  come  to  such  economy  and  simplicity 
and  fiscal  beauty  as  this  is  ;  for  the  pride  of  sovereignty  is 
very  strong  both  in  State  and  Nation;  each  is  jealous  of 
the  powers  of  the  other,  each  is  fond  of  the  pelf  and 
patronage  and  officialism  connected  with  the  gathering  of 
the  taxes,  and  each  would  be  disinclined  to  yield  anything 
to  the  other  ;  but  the  fact  remains,  that,  as  it  is  of  acknowl- 
edged moment  to  have  the  single  Caesar's  image  and  in- 
scription on  every  piece  of  the  national  Money,  so  it  is  of 
almost  equal  moment  in  point  of  cheapness  and  clearness 
and  simplicity  to  have  the  hand  of  Caesar  seen  but  once  in 
taking  in  the  Taxes. 


552  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Objection  has  been  often  raised  to  any  form  of  Income- 
tax  from  the  publicity  of  private  affairs  resulting  from  it. 
It  was  just  this  that  proved  fatal  to  our  own  first  experi- 
ment along  this  line  of  national  action.  But  there  seems 
to  be  some  confusion  of  ideas  in  connection  with  this 
phrase,  "  publicity  of  private  affairs,"  for  really,  so  far  as 
taxation  is  concerned,  there  ought  to  be  nothing  "  private  " 
about  the  amount  of  any  man's  income,  or  the  aggregate 
of  all  forms  of  his  property,  inasmuch  as  every  man  has  a 
right  to  know,  that  all  his  neighbors  are  contributing  pro 
rata  with  himself  to  support  that  Government,  which  is 
common  to  him  and  them.  There  is  nothing,  at  least  there 
should  be  nothing,  "  private  "  in  connection  with  Govern- 
ment; that  is  the  one  absolutely  "public"  thing  of  the 
world;  least  of  all  should  there  be  anything  private  in  the 
matter  of  public  taxes,  since  in  bearing  up  the  burdens  of 
Government  all  the  citizens  are  alike  copartners,  and  in 
this  view  and  for  this  purpose  each  has  a  right  to  demand 
a  look  into  the  books  of  all  the  others. 

Another  objection  has  often  been  raised,  namely,  that 
some  men  will  never  give  in  a  true  return  of  their  Income. 
Ah !  but  they  can  be  made  to  do  so,  as  the  forms  are  per- 
fected, as  fraudulent  returns  are  promptly  punished  by 
additional  assessment  and  collection,  and  as  the  memory 
and  conscience  of  the  payers  are  quickened  by  the  action 
of  a  healthful  public  opinion  brought  to  bear  through  the 
annual  publication  of  the  list  of  their  returns.  Men  are 
not  so  isolated  from  each  other  as  that  a  man's  neighbors 
do  not  know  pretty  well  the  general  amount  of  his  income. 
There  is  the  additional  security  of  an  oath,  of  the  fear  of 
punishment,  and  of  the  wish  to  stand  well  with  one's  class. 
At  the  worst,  it  may  be  said,  that  evasions  and  fraud  ac- 
company also  all  other  forms  of  Taxation. 

5.    What  is  the  difference  between  DIRECT  and  INDIRECT 


TAXATION.  553 

Taxes  ?  This  is  an  old  and  proper  division  :  we  must  now 
see  what  is  the  economical  basis  of  it.  A  direct  tax  is 
levied  on  the  very  persons  who  are  expected  themselves  to 
pay  it ;  an  indirect  tax  is  demanded  from  one  person  in 
the  expectation  that  he  will  pay  it  provisionally,  but  will 
indemnify  himself  in  the  higher  price  which  he  will  receive 
from  the  ultimate  consumer.  Thus  an  income  tax  is  direct, 
while  duties  laid  on  imported  goods  are  indirect.  There 
has  been  a  great  amount  of  discussion  on  the  point  whether 
direct  or  indirect  taxation  be  the  more  eligible  form ;  but 
the  reader  of  penetration  will  perceive  that  there  is  not  at 
bottom  any  very  radical  difference  between  them ;  each  is 
alike  a  tax  on  actual  or  possible  exchanges,  with  this  main 
difference,  that  men  pay  indirect  taxes  as  a  part  of  the 
price  of  the  goods  they  buy,  without  thinking  perhaps  that 
it  is  a  tax  they  are  paying,  and  consequently  without  any 
of  the  repugnance  that  is  sometimes  felt  towards  a  tax- 
gatherer  who  comes  with  an  unwelcome  demand.  Thus 
indirect  taxes  are  conveniently  and  economically  collected. 
Especially  is  this  true  of  impost  taxes ;  since  one  set  of 
custom-house  officers  may  collect  easily  and  at  once  the 
government  tax  which  is  ultimately  paid  by  consumers  all 
over  the  country.  The  taxes  also  levied  by  the  present 
United  States  internal  revenue  law  are  indirect  taxes, 
whereby  the  government  gets  in  a  lump  what  is  afterwards 
distributed  over  many  subordinate  exchanges.  The  counter- 
vailing disadvantage  of  indirect  taxation,  however,  is,  that 
the  price  of  the  commodity  is  usually  enhanced  to  an  extent 
much  beyond  the  amount  of  the  tax,  partly  because  it  is 
a  cover  under  which  dealers  may  put  an  unreasonable  de- 
mand, and  partly  because  the  tax,  having  to  be  advanced 
over  and  over  again  by  the  intermediate  dealers,  profits 
rapidly  accumulate  as  an  element  of  the  ultimate  price. 
Direct  taxes  are  laid  either  on  Income  or  Expenditure. 


554  PRINCIPLES   OF   POLITICAL  ECONOMY. 

As  the  difficulty  of  a  tax  on  a  person's  whole  expenditure 
is  much  greater  than  one  on  his  whole  income,  inasmuch  as 
the  items  are  more  numerous  and  more  diffused,  it  is  only 
attempted  to  levy  a  few  taxes  on  some  special  items  of 
expenditure,  such  as  those  on  horses,  carriages,  plate, 
watches,  and  so  on ;  but  as  these  do  not  reach  all  persons 
with  any  degree  of  quality,  they  are  so  far  forth  objection- 
able. A  house-tax,  levied  on  the  occupier,  and  not  on  the 
owner,  unless  he  be  at  the  same  time  the  occupier,  would 
be  a  direct  tax  on  expenditure  every  way  unobjectionable. 
Taking  society  at  large,  the  house  a  man  lives  in  and  its 
furniture  are  probably  the  most  accurate  index  attainable 
of  the  size  of  his  general  expenditures.  They  are  open  to 
observation  and  current  remark;  they  are  that  on  which 
persons  rely  more  perhaps  than  on  anything  else  external 
for  their  consideration  and  station  in  life ;  the  tax  could  be 
assessed  with  very  little  trouble  on  the  part  of  the  assessor ; 
and  it  is  well  worthy  the  attention  of  our  State  and 
National  Legislatures,  whether  such  a  tax,  if  more  taxes 
should  be  needed,  would  not  be  more  equal  and  more  easy 
of  collection  than  any  others  now  open;  or  whether  it 
might  not  with  advantage  take  the  place  of  some  of  the 
complicated  and  objectionable  taxes  now  laid.  Direct 
taxes  have  this  general  advantage  over  indirect,  that  they 
bring  the  people  into  more  immediate  contact  with  the 
government  that  lays  the  taxes,  and  subject  it  to  a  quicker 
supervision  and  more  effectual  curb,  whenever  its  expendi- 
tures grow  larger  than  the  people  think  it  desirable  to  incur ; 
perhaps  they  have  this  general  disadvantage  over  indirect 
taxes,  especially  over  imposts,  that  the  number  of  officials 
required  to  assess  and  collect  them  is  larger,  thus  swallow- 
ing up  a  part  of  the  proceeds  of  the  taxes,  with  this  liability 
also  of  bringing  the  people  into  an  attitude  of  hostility 
to  the  government  and  to  its  contemplated  expenditures. 


TAXATION.  555 

But  whether  the  taxes  be  direct  or  indirect,  or  whatever  be 
their  form,  except  it  be  a  poll-tax,  which  is  questionable  at 
best,  they  are  laid  upon  Exchanges,  and  are  designed  to 
withdraw  for  the  use  of  the  government  a  part  of  the  Gains 
of  exchanges. 

6.  Are  CREDITS  a  legitimate  subject  of  Taxation  ?  The 
answer  is  very  easy.  Unless  this  whole  treatise  from  begin- 
ning to  end  be  unsound,  Credits  stand  upon  the  same  eco- 
nomical grounds  as  Commodities  and  Services,  and  so  may 
be  taxed  for  the  same  reasons  as  those  may  be  taxed. 
Whatever  is  bought  and  sold  is  properly  enough  taxed,  if 
the  needs  of  the  government  require  it,  and  if  such  taxa- 
tion would  be  productive  and  not  too  unequal.  As  Values 
always  spring  from  the  action  of  individuals,  so  the  inci- 
dence of  taxes  is  upon  persons  rather  than  upon  things ; 
and  the  question  is  what  can  a  man  sell,  or  what  has  he 
already  sold,  on  the  gains  of  which  sale  the  government 
may  lay  some  claim  ?  If  I  have  a  note  and  mortgage  on 
my  neighbor's  farm,  I  can  sell  it  at  any  time  to  a  third 
party ;  it  pays  me  interest  ad  interim,  and  I  can  collect  it 
at  maturity.  Government  therefore  properly  taxes  me  for 
that  credit  in  my  possession.  It  is  a  part  of  my  property. 
The  holders  of  the  government  bonds  occupy  an  economi- 
cal position  exactly  similar.  They  have  a  lien  on  the 
national  property  and  income.  The  credits  they  hold  are 
vendible  commodities.  They  are  a  paper  bearing  interest. 
They  can  be  collected  at  maturity.  They  are  indeed  ex- 
empted by  law  from  municipal  and  State  taxation.  That 
was  a  legitimate  inducement  held  out  to  everybody  alike  to 
invest  in  the  bonds.  But  there  is  no  reason  why  the  nation, 
having  withdrawn  them  from  town  and  State  taxation, 
should  not  itself  all  the  more  subject  them  to  their  fair 
share  of  the  national  burdens,  unless  indeed  it  be  claimed, 
as  perhaps  it  fairly  may  be,  that  the  exemption  enables  the 


556  PRINCIPLES    OF   POLITICAL    ECONOMY. 

government  to  borrow  at  a  just  so  much  lower  rate  of  in- 
terest.  The  income  at  any  rate  derived  from  the  bonds 
should  be  taxed  as  soon  as  any  other  income  is.  It  is  no 
longer  any  ground  of  merit,  even  if  it  ever  has  been,  for 
persons  to  buy  the  government  debt.  It  is  a  mercantile 
transaction,  and  should  be  so  considered  in  relation  to 
taxes.  So  of  other  mercantile  credits.  They  are  taxable. 
Massachusetts  has  had  a  great  deal  of  trouble  of  late  years 
both  in  the  Legislature  and  otherwise  about  the  taxation 
of  mortgages  on  taxed  Massachusetts  farms  and  other  real 
estate.  The  question  is  intricate  and  full  of  difficulty. 
Some  things  about  it,  however,  are  clear.  The  note  and 
mortgage  is  a  different  piece  of  property,  and  a  different 
kind  of  property,  from  the  real  estate.  It  is  a  peculiar  sort 
of  credit.  The  owner  of  it  is  a  different  person  from  the 
owner  of  the  real  estate.  Either  bit  of  property  may  change 
hands  without  changing  the  status  of  the  other.  The 
question  of  taxing  the  note  and  mortgage,  like  the  question 
of  taxing  the  bonds,  seems  to  hinge  on  the  effect  it  would 
have  on  the  rate  of  interest  of  the  obligation  secured  by 
the  mortgage.  If  the  holder  of  the  mortgage  expects  to 
have  to  pay  a  tax  upon  it,  he  will  try  to  get  a  higher  rate 
of  interest  on  his  money  loaned  and  thus  secured.  Whether 
mortgagees  taxed  as  such  can  throw  off  the  tax  upon  the 
mortgagors  in  a  higher  rate  of  interest  on  the  money  loaned 
is  a  point  much  disputed  and  at  least  doubtful.  General 
principles  would  lead  us  to  favor  the  taxation  of  note  and 
mortgages  in  the  hands  of  their  holders,  so  long  as  such 
cumbersome  forms  of  taxing  as  prevail  in  Massachusetts 
are  maintained.  A  universal  income-tax  would  solve  this 
difficulty  also  in  a  moment  of  time. 

7.  Has  Political  Economy  anything  to  say  about  the 
RATE  of  taxes  per  unit  of  that  which  is  subject  to  tax  ? 
Yes;  it  has  an  important  word  to  say  upon  that  point. 


TAXATION.  557 

From  the  very  nature  of  Taxes  in  general,  and  in  order 
that  they  may  be  most  productive  in  the  long  run,  as  well 
as  discourage  as  little  as  possible  the  Exchanges  which 
would  otherwise  go  forward,  the  Rate  of  taxes  ought  always 
to  be  low  relatively  to  the  amount  of  Values  exchangeable. 
A  high  rate  of  tax  not  infrequently  stops  exchanges  in  the 
taxed  articles  altogether,  and  of  course  the  tax  then  real- 
izes nothing  to  the  government.  As  the  only  motive  to  an 
exchange  is  the  gain  of  it,  the  exchange  ceases  whenever 
the  government  cuts  so  deeply  into  the  gain  as  to  leave 
little  margin  to  the  exchangers.  The  greater  the  gain 
left  to  the  parties,  after  the  tax  is  abstracted,  the  more 
numerous  will  the  exchanges  become,  and  the  greater  the 
number  of  times  will  the  tax  fall  into  the  coffers  of  the 
government.  In  almost  all  articles,  consumption  increases 
from  a  lowered  price  in  even  a  greater  ratio  than  the  dimi- 
nution of  the  rate  of  tax  ;  so  that  the  interests  of  consumers 
and  of  the  revenue  are  not  antagonistic  but  harmonious. 
On  articles  of  luxury  and  ostentation,  and  on  those,  such 
as  liquors  and  tobaccos,  whose  moral  effects  are  clearly 
questionable,  very  high  taxes  may  properly  enough  be  laid, 
because  their  incidence  will  hardly  tend  to  diminish  con- 
sumption, and  it  would  scarcely  be  regretted  if  it  did; 
but  with  this  exception,  duties  and  taxes  should  be  levied 
at  a  low  rate  per  centum  as  well  for  the  interest  of  revenue 
as  of  consumers.  It  is  to  be  added,  however,,  that  the 
taxes  even  on  these  articles  may  be  too  high  to  meet  either 
a  revenue  or  a  moral  purpose.  The  internal  tax  of  two 
dollars  a  gallon  upon  distilled  spirits  was  of  this  character. 
Experience  has  demonstrated  that  a  less  tax  will  produce 
more  revenue,  and  the  drinking  of  whiskey,  bad  as  that  is, 
is  less  culpable  than  the  endless  frauds  on  the  government? 
provoked  by  the  high  tax. 

8.  What  is  the  difference  between  SPECIFIC  and  ADVALO 


558  PRINCIPLES   OF  POLITICAL  ECONOMY. 

KEM  Taxes,  and  why  should  the  student  take  careful  note 
of  these  both  singly  and  combined  ?  These  terms  are  used 
more  particularly  in  relation  to  Tariff-taxes,  but  there  is 
nothing  in  the  distinction  itself  so  to  limit  its  application. 
A  Specific  tax  is  a  tax  of  so  many  cents  or  dollars  on  the 
pound,  yard,  gallon,  or  other  quantity  measurable :  an  Ad- 
valorem  tax  is  a  tax  of  so  much  per  centum  on  the  invoiced 
or  appraised  money  value  of  the  goods  subject  to  the  tax. 
Specific  taxes,  accordingly,  are  far  simpler  and  steadier  in 
their  operation  than  the  others ;  it  is  easy  to  ascertain  the 
weight  or  number  or  other  quantity  of  valuables,  and  then 
to  apply  a  fixed  ratio  to  them  in  the  way  of  tax ;  the  payer 
knows  or  may  know  beforehand  precisely  how  much  the 
tax  will  amount  to,  and  consequently  just  how  it  is  to  affect 
the  profitableness  of  his  current  trade  ;  and  on  these  and 
other  grounds  specific  taxes  are  preferable  to  advalorem 
ones.  To  be  sure,  this  form  of  tax  involves  that  high- 
priced  grades  of  an  article  pay  no  higher  taxes  than  low- 
priced  grades  of  the  same,  but  this  consideration  is  largely 
overbalanced  by  those  of  convenience  and  productiveness. 
Advalorem  taxes,  on  the  other  hand,  are  never  calculable 
beforehand ;  because  Values  from  their  nature  are  variable, 
and  as  a  matter  of  fact  do  constantly  vary.  Imported  goods, 
for  instance,  bring  with  them  the  invoice  of  the  seller  giv- 
ing the  values  at  the  place  of  exportation.  But  the  impor- 
ter is  by  no  means  sure  that  the  tax  will  be  levied  upon 
that  valuation.  The  home  valuation  will  of  course  be 
higher,  otherwise  the  goods  would  not  be  imported.  When- 
ever it  becomes  the  policy  of  a  country,  as  of  the  United 
States  at  present,  to  keep  foreign  goods  out  to  the  utmost 
extent  possible  under  the  law,  which  law  is  itself  devised 
on  purpose  to  keep  them  out,  there  will  always  be  sus- 
picions and  charges  of  undervaluations  at  the  place  of 
export ;  there  will  always  be  a  motive  on  the  part  of  the 


TAXATION.  559 

foreign  seller  or  agent  thus  to  undervalue  the  goods  in  the 
interest  of  the  importer,  so  as  to  lessen  his  tax,  and  so 
increase  the  seller's  market ;  such  abnormal  tariff-taxes  are 
the  enemy  of  mankind  in  general,  and,  therefore,  there  will 
be  no  end  of  deceits  and  evasions  at  both  terminals  of  the 
ocean-route,  and  "  custom-house  oaths  "  will  become  a  by- 
word of  course  ;  the  importing,  or  rather  the  non-importing, 
country  will  keep  in  pay  an  army  of  spies  and  informers  on 
both  sides  of  the  water  in  order  to  prevent  what  is  called 
"  frauds,"  and  another  army  of  "  appraisers  "  at  its  custom- 
houses in  order  to  discredit  the  invoices,  and  to  jump  at  a 
valuation  of  the  goods,  on  which  the  tax  shall  be  levied; 
and  honorable  merchants  and  importers,  without  any  fault 
of  their  own,  are  liable  to  get  entangled  in  the  miserable 
meshes  of  such  goings-on,  as  happened  in  a  memorable 
case  in  New  York  a  few  years  ago,  and  be  mulcted  in  fines 
(perhaps  to  immense  amounts)  one-half  of  which  shall  go 
to  the  informer. 

There  are  too  many  practical  difficulties  connected  with 
either  of  these  two  forms  of  tax  to  make  it  proper  to  com- 
bine the  two  upon  the  same  article  of  merchandise.  To 
combine  them  thus  is  one  of  the  tricks  and  traps  of  Pro- 
tectionism. That  makes  it  next  to  impossible  for  any 
importer  to  tell  beforehand  what  the  two  taxes  will  aggre- 
gate, and  quite  impossible  for  any  ultimate  consumer  to 
tell  how  much  of  his  price  paid  is  due  to  the  demands  of 
his  Government.  Opening  the  official  tax-book  at  ran- 
dom, we  quote  as  follows  from  a  single  page  :  "  Webbings, 
pound  50  cents,  and  50  per  cent "  ;  "  Buttons,  pound  50 
cents,  and  50  per  cent " ;  "  Suspenders,  pound  50  cents, 
and  50  per  cent " ;  "  Mohair  cloth,  pound  30  cents,  and  50 
per  cent "  ;  "  Dress  trimmings,  pound  50  cents,  and  50  per 
cent."  Besides  these,  on  that  same  page,  there  are  14 
other  articles  under  similar  compound  taxes,  mostly  at  50 


560  PRINCIPLES   OF   POLITICAL   ECONOMY. 

cents  a  pound  and  50  per  cent  additional,  this  as  under 
the  Tariff  as  it  was  1874-83  ;  but  all  these  18  articles  were 
put  in  1883  at  "pound  30  cents,  and  50  per  cent." 

9.  What  are  the  economical  reasons  for  an  EXCISE  or 
INTERNAL-TAX  in  connection  with  Tariff-taxes  for  reve- 
nue? A  tariff-tax,  whether  for  revenue  or  other  purpose, 
raises  the  price  by  so  much  of  the  article  subjected  to  it 
and  actually  imported ;  now,  if  similar  articles  of  the  same 
quality  be  made  or  grown  at  home,  and  be  not  subjected 
to  a  corresponding  tax,  these  will  inevitably  rise  to  the 
price  of  the  foreign,  with  the  tariff-tax  added,  for  there  is 
no  possible  competition  or  conceivable  impulse  that  can 
keep  it  lower  than  that ;  so  that,  in  that  case,  the  govern- 
ment gets  in  revenue,  only  the  taxes  paid  on  the  part 
imported,  while  the  people  are  compelled  to  pay  in  addi- 
tion virtually  the  same  taxes  on  all  that  part  produced  at 
home.  Why  should  not  the  government  have  the  pro- 
ceeds of  the  last  as  well  as  of  the  first  ?  The  last  is  the 
direct  result  of  the  first.  If  now,  a  corresponding  excise- 
tax  be  put  on  the  domestic  product  also,  the  government 
will  get  in  revenue  all  that  the  people  are  obliged  to  pay 
in  consequence  of  government-tax.  This  is  just:  the 
other  is  wantonly  unjust. 

Take  an  illustration,  please.  The  national  Census  of 
1890  gives  the  Pig-iron  production  of  the  Census  year  as 
9,579,779  tons  of  2000  Ibs.  each.  This  is  an  increase  over 
the  production  of  the  Census  year,  1880,  of  255  per  cen- 
tum, —  3,781,021 :  9,579,779.  Fortunately  the  present  Cen- 
sus adds  the  net  imports  for  the  two  years  respectively, 
with  these  results :  the  per  capita  consumption  of  Pig-iron 
in  1880  was  196  Ibs.,  of  which  126  was  home  production, 
and  70  of  foreign  import ;  while  in  1890  the  consumption 
was  320  Ibs.  per  capita,  of  which  299  was  domestic,  and  21 
foreign.  That  is  to  say,  in  1880,  65%  of  the  pig-iron  con- 


TAXATION.  561 

sumed  in  this  country  was  of  home  production,  and  35% 
was  of  foreign  production.  At  that  time  the  tariff-tax  on 
imported  pig  was  $7  per  ton.  Government  secured  this 
tax  on  a  little  more  than  one-third  of  what  was  consumed, 
while  a  small  circle  of  citizens  banded  together  for  that 
purpose  secured  for  themselves  this  tax  on  the  remaining 
two-thirds  of  all  pig-iron  consumed  that  year,  and  the 
whole  people  paid  the  tax  on  the  entire  three-thirds.  As  we 
shall  see  fully  a  little  further  on,  our  national  Government 
has  no  constitutional  or  other  right  to  tax  the  people  one 
penny  except  to  supply  its  own  needs  as  such ;  if,  there- 
fore, the  $7  impost  per  ton  were  put  on  as  a  legitimate 
tax,  there  should  have  been  an  excise  or  internal-tax  to  the 
same  amount  put  on  the  pig-iron  produced  at  home.  That 
would  have  cost  the  people  no  more,  and  the  Government 
would  have  gotten  twice  as  much  more  as  it  did  get  from 
the  tax.  If  there  be  an  axiom  in  Taxation,  one  point 
indisputable  by  any  rational  human  being,  it  is  this  :  The 
Treasury  should  receive  all  that  the  people  are  made  to  give 
up  under  a  public  tax. 

In  1890,  this  particular  matter  came  to  be  much  more 
flagrant.  Only  21  parts  out  of  320  parts  were  in  that  year 
foreign  pig-iron ;  that  is,  a  little  less  than  7%,  while  93% 
was  domestic  pig-iron ;  the  tariff-tax  at  that  date  was  .3  of 
a  cent  per  pound,  or  $ 6.72  per  ton  of  2240  Ibs. ;  the  tax 
was  sufficient  practically  to  exclude  foreign  pig,  although 
the  Scotch  pig  as  more  fluent  is  very  much  desired  here 
in  some  branches  of  the  iron  manufacture,  particularly  in 
making  steel  rails ;  Government  received  the  proceeds  of 
its  own  tax  on  only  one-fourteenth  of  that,  which  really 
paid  the  tax  on  its  whole  fourteen-fourteenths ;  where  did 
the  tax  on  the  thirteen-thirteenths  go  to  ?  If  this  were  a 
matter  of  genuine  taxation,  ought  there  not  to  have  been 
an  excise  on  the  domestic  corresponding  to  the  impost  on 
the  foreign  ? 


562  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Precisely  that  is  what  we  do  in  the  case  of  other  articles 
not  protectionized.  For  example,  in  the  fiscal  year  1889, 
the  excise  or  internal-tax  on  "  distilled  spirits  and  wines  " 
realized  to  the  Treasury  174,312,200,  and  the  tariff-tax  on 
the  same  realized  17,123,062,  total,  $81,43,5,268;  on  "malt 
or  fermented  liquors"  the  same  year,  the  excise  was 
123,723,835,  the  impost  only  1663,337,  total,  $24,387,172  ; 
and  on  "  tobacco  "  the  excise  was  $31,866,860,  the  impost 
$11,194,486,  total,  $43,061,346.  These  figures  are  official. 

An  ostentatious  display  of  private  figures  and  price-lists 
is  often  made,  with  a  design  to  show  that  the  prices  of 
home-made  products  protectionized  are  not  lifted  so  high 
to  consumers  or  buyers  as  those  of  foreign-made  products 
with  the  tariff-taxes  added.  The  main  sophistry  in  these 
figures  is  this:  the  pure  assumption,  that  the  quality  of 
the  home-made  products  alleged  to  be  cheaper  than  the 
tax-added  price  of  the  foreign,  is  the  same  as  that  of  the 
foreign.  Unluckily,  things  are  often  called  by  the  same 
names,  and  even  described  by  the  same  technical  terms, 
which  are  very  different  sorts  of  things  in  reality.  A 
subordinate  sophistry  in  these  figures,  often  allowed  to 
pass,  but  not  requiring  any  sharp  insight  to  detect,  is,  that 
the  selected  price-lists  are  not  the  results  of  an  average 
extending  throughout  years,  but  are  picked  at  points  when 
(owing  to  other  causes  than  the  taxes)  the  current  prices 
of  protectionized  home  products  are  lower  than  the  average 
of  the  years.  One  easy  way  to  expose  the  putters-forth  of 
these  figures,  as  not  themselves  really  believing  in  them, 
is,  gravely  to  propose  to  lower  or  remove  the  tariff-taxes, 
which  (it  is  alleged)  do  not  have  the  effect  to  lift  much,  if 
any,  domestic  prices.  This  simple  experiment  has  several 
times  been  tried,  with  ludicrous  effect  upon  the  figure- 
mongers  ;  they  cannot  spare  one  iota  of  present  taxes  on 
foreign  products  :  if  the  smallest  fraction  be  removed,  they 


TAXATION.  563 

can  no  longer  make  and  vend  their  wares ;  indeed,  heavier 
tariff-taxes  are  needed  at  this  very  moment,  in  order  to  lift 
the  domestic  prices  higher ;  and,  presto !  another  set  of 
figures  are  forthcoming  at  once  to  prove  the  disabilities, 
either  in  respect  to  Labor  or  Capital,  under  which  the  poor 
protectionized  producers  are  staggering  in  order  to  keep 
the  home  market ! 

Another  complete  refutation  of  the  false  position  of  the 
protectionists,  namely,  that  the  domestics  are  not  lifted  in 
price  on  the  average  to  the  price  of  the  foreigns  of  the 
same  quality  with  the  tariff-taxes  added,  is  their  utter 
failure  and  inability  to  project  any  reason  in  the  nature  of 
things  or  the  motives  of  men,  why  the  home-prices  should 
NOT  be  thus  lifted!  What  impulse,  pray,  on  the  earth  or 
under  the  earth,  can  serve  to  depress  them  on  the  whole 
average  beloiv  that  point  ?  Does  any  one  say,  that  "  domes- 
tic competition  "  will  depress  and  keep  depressed  the  prices 
of  home  goods  of  the  same  grade  below  the  prices  of  the 
foreign  taxes  paid  ?  Did  this  astute  objector  ever  hear  of 
"  domestic  combination  "  to  keep  prices  up  to  the  highest 
possible  point  ?  To  shut  down  mills  and  factories,  to  avoid 
depressing  prices  ?  To  sell  surplus  stocks  abroad  for  what 
can  be  gotten  for  them,  in  order  to  make  prices  at  home  up 
to  the  usual  scarcity  point?  In  July,  1890,  the  Boston 
Commercial  Bulletin,  the  special  organ  of  Protectionism  in 
New  England,  and  special  spokesman  for  the  wool-and- 
woollens  industry,  spoke  thus  of  that  industry,  after  30  years 
of  public  hiring  the  growers  and  manufacturers  to  carry 
it  on  with  a  bonus,  just  at  a  time  when  the  worsted  tariff- 
taxes  had  been  advanced,  alleged  custom-house  frauds 
stopped,  and  still  higher  tariff-taxes  on  their  way  from  the 
so-called  McKinley  Bill  in  Congress :  "  The  woollen  goods 
industry  was  probably  never  in  much  worse  condition  in  this 
country.  The  slowness  of  its  development  may  be  judged 


564  PEINCIPLES   OF   POLITICAL   ECONOMY. 

from  the  fact,  that,  despite  an  average  yearly  increase  of  over 
a  million  in  population,  the  increase  in  the  number  of  wool 
cards  in  this  country  is  less  than  a  hundred  a  year,  while  the 
proportion  of  woollen  machinery  shut  down  between  June  1 
and  September  1  bids  fair  to  be  the  largest  ever  known.  The 
market  is  dull,  deadly  dull.  The  large  amount  of  silent 
machinery  is  making  its  presence  felt.  The  sluggish  sales  of 
wool  are  due  to  most  of  the  big  mills  being  closed.  Depression 
in  business  is  the  cause  of  so  many  woollen  mills  closing,  and 
the  news  comes  this  week  of  four  woollen  mills,  three  in  the 
Bay  State  and  one  in  Pennsylvania,  that  will  close  for 
periods  ranging  from  two  iveeks  to  several  months." 

Not  only  is  it  true,  that  the  purpose  and  usual  effect  of 
tariff-taxes  is  to  hoist  the  price  of  domestics  protectioiiized 
up  to  the  limit  of  the  corresponding  f  oreigns  with  the  taxes 
added,  but  it  sometimes  happens  that  the  home  products 
are  carried  for  considerable  periods  at  a  level  a  good  deal 
above  that.  A  conspicuous  instance  of  this,  commented  on 
at  the  time  by  all  the  Boston  papers,  was  brought  to  notice 
a  couple  of  years  ago  in  connection  with  the  steel  beams 
purchased  by  the  city  for  the  new  and  noble  Boston  Oourt- 
House.  The  beams  were  bought  in  Belgium  at  $28  a  ton, 
paid  at  the  Boston  Custom-house  "  one  and  one-fourth  cents 
a  pound,"  that  is,  just  $28  a  ton,  making  their  cost  to  the 
city  $56  a  ton.  But  domestic  steel  beams  of  the  same  gen- 
eral description  were  selling  here  at  $73  a  ton.  Their 
price  had  been  raised  here  twice  in  one  summer,  about  fifty 
cents  a  ton  each  time.  One  of  the  conglomerated  curses 
of  cutting  off  by  law  the  natural  competition  in  such  prod- 
ucts is,  that  the  unnatural  competition  still  permitted  by 
law  is  sluggish  in  coming  into  operation,  and  the  monopoly 
becomes  even  more  such  than  was  intended  by  the  law. 

The  tariff-tax  on  steel  rails  is  $17  a  ton,  formerly  $28  a 
ton,  proposed  in  the  McKinley  bill  to  be  reduced  to  $11.20 


TAXATION.  565 

a  ton.  That  even  this  last  is  wholly  needless,  or  any  tax 
at  all  on  steel  rails,  is  proven  by  the  fact,  that  in  March, 
1890,  Pittsburg  rail-makers  sold  5000  tons  of  rails  at  Vera 
Cruz  at  lower  prices  than  the  corresponding  European 
rails  were  offered  for  in  Mexico.  Another  fact  that  proves 
the  same  thing  is  this :  James  M.  Swank,  the  mouth-piece 
of  the  Pennsylvania  iron  and  steel  interests,  describes  the 
year  1885  as  one  of  unprecedented  prosperity  in  the  steel- 
rail  industry,  and  gives  a  formidable  list  of  new  establish- 
ments opened  in  that  year.  But  steel  rails  were  much 
lower  in  that  exceptional  year  than  in  any  year  before  or 
since.  A  tariff-tax  of  $5  a  ton  would  have  been  in  that 
year  absolutely  prohibitory,  for  steel  rails  were  worth  less 
than  $28  a  ton  the  greater  part  of  that  year.  Yet  that 
very  year  was  the  year  of  greatest  prosperity,  Mr.  Swank 
being  the  competent  witness  !  But  the  fact  in  general, 
which  ought  to  overwhelm  the  iron  and  steel  protectionists 
with  confusion,  if  they  were  capable  of  any  such  emotion, 
is,  that  iron  and  steel  in  every  form  of  both,  owing  to  the 
unprecedented  bounty  of  God  to  this  good  land,  costs  less 
both  in  labor  and  capital  here  than  in  any  other  country 
in  the  world.  The  official  figures  of  the  current  Census 
demonstrate  this,  authentic  statements  of  practical  oper- 
ators at  the  iron  mines  and  furnaces  and  foundries  through- 
out the  Tennessee  Valley  confirm  it,  and  there  is  not  one 
particle  of  evidence  to  the  contrary  of  any  name  or  nature. 

Let  the  reader  notice  carefully  the  following  quotation 
from  a  private  letter  to  the  writer,  dated  July  30,  1890, 
written  by  a  graduate  of  this  college,  in  whom  all  who 
know  him  have  the  fullest  confidence  : 

"  We  began  to  open  the  mines  here  just  three  years  ago  this 
Fall,  and  began  shipping  the  following  Spring.  Our  price 
for  the  ore  was  then  about  $1.50  a  ton,  depending  on  the 
analysis.  We  mined  in  the  old-fashioned  way  —  with  picks 


566  PRINCIPLES   OF   POLITICAL   ECONOMY. 

and  shovels  —  and  1  am  safe  in  saying  it  cost  us  all  we 
got  for  it.  I  know  1  was  continually  making  drafts  on  my 
father  to  keep  me  out  of  debt.  1  did  not  figure  on  the 
cost  at  that  time  —  I  was  afraid  of  the  figures.  My  only 
thought  was  how  to  reduce  the  cost.  We  had  a  Steam 
Shovel  in  Pennsylvania,  and  1  got  my  father  to  send  it  to  me 
for  trial  in  this  ore.  We  found  we  could  use  it  to  advantage 
by  using  also  plenty  of  powder,  and  1  was  soon  able  to  buy  the 
second  shovel.  Of  course  that  reduced  the  cost  of  production 
still  lower,  and  as  there  was  a  market  for  all  I  could  do,  I  got 
the  third,  and  am  now  putting  in  the  fourth,  and  the  fifth  is 
bought  and  to  be  delivered  inside  of  60  days.  This  doubling 
up  of  the  shovels  made  me  get  locomotives  to  carry  the  ore  in 
the  mines  instead  of  mules.  I  have  now  two  locomotives. 
You  will  understand  how  it  would  make  a  saving  at  that 
point.  It  would  require  15  mules  to  do  that  work,  and  it 
could  not  be  done  so  promptly. 

During  the  month  of  May  we  shipped  about  14,500  tons 
with  the  use  of  three  shovels,  and  at  a  cost  per  ton  for  labor 
and  fuel  and  powder  of  33  cents.  We  have  reduced  the  cost 
on  a  week's  run,  in  good  weather  and  with  no  lack  of  empty 
cars,  to  29  cents,  but  it  never  came  lower  on  the  month's  aver- 
age than  33.  I  expect  this  Fall,  with  five  shovels  instead  of 
three,  and  two  locomotives  instead  of  one,  to  lower  the  cost  of 
production. 

Our  average  price  at  the  mines  is  $1.20;  we  sell  some 
higher.  1  have  just  now  taken  a  contract  for  40,000  tons  to 
be  delivered  between  now  and  the  \st  of  February,  1891,  at 
$1.1 2i.  This  is  the  lowest  contract  price  we  have  ever  made, 
and  likely  that  has  ever  been  made  in  this  locality ;  but  I  did 
it  to  get  into  a  different  market.  That  ore  is  to  go  to  Nash- 
ville —  a  distance  0/"120  miles.  The  reason  for  cutting  the 
price  to  get  the  increased  quantity  I  will  not  need  to  explain 
to  you.  You  taught  it  to  me.  The  freight  to  Nashville  is 


TAXATION.  567 

75  cents.  To  our  other  furnaces  in  Alabama,  at  Sheffield  and 
Florence,  the  freight  is  only  35  cents.  What  other  contracts 
I  have  at  present  are  at  $1.25. 

With  three  shovels  we  make  from  600  to  800  tons  a  day. 
With  one  shovel  we  made  from  150  to  250  a  day.  The  varia- 
tion from  day  to  day  depends  on  the  quality  of  the  material 
we  handle. 

The  ore  is  all  washed  and  picked  and  screened  before  it  is 
loaded  on  the  cars.  A  very  important  part  of  the  work  is 
the  work  done  in  the  ivasher.  It  requires  very  expensive  ma- 
chinery, and  the  wear  and  tear  is  enormous. 

We  pay  unskilled  laborers  ten  cents  an  hour,  skilled  men 
as  high  as  twenty-five.  We  work  eleven  hours  a  day.  Our 
general  foreman  gets  $100  a  month." 

Sugar  and  Molasses  brought  in  through  the  tariff  in  the 
fiscal  year  1889,  §55,995,137.  The  quantity  of  domestic 
sugar  and  molasses  relatively  to  the  quantity  imported  is 
so  small,  that  an  excise  upon  it  in  accordance  with  the 
general  principle  of  these  paragraphs  is  not  worth  while, 
but  would  be  far  more  just  and  rational  than  to  offer  boun- 
ties to  the  domestic  producers  out  of  the  taxes  paid  by  the 
consumers  of  foreign  sugar.  A  "  bounty  "  in  this  sense  is 
at  once  an  abuse  of  a  good  word,  and  an  abomination  in 
point  of  fact.  For  any  Government,  which  is  nothing  but 
a  Committee  of  all  the  citizens  to  attend  to  certain  joint 
concerns  of  all,  to  abstract  money  through  taxes  from  the 
pockets  of  a  part  of  these  citizens  in  order  to  reward  another 
part  for  carrying  on  an  unprofitable  branch  of  business,  is 
something  equally  repugnant  to  Economy  and  Equality. 

10.  What,  then,  is  the  BOTTOM-PRINCIPLE  in  the  Mode 
of  Taxation  ?  It  is  this :  Relatively  low  taxes  so  adjusted 
on  comparatively  few  things  as  not  to  disturb  natural  prices. 
The  principle  is  simple  :  the  problem  is  difficult ;  but  won- 
derfully less  so  the  moment  all  attempts  are  given  up  to 


568  PRINCIPLES   01?  POLITICAL  ECONOMY. 

foster  any  branch  of  industry  whatever.  Our  legislators  are 
not  called  upon  to  foster  any  industries.  It  is  out  of  their 
beat.  They  cannot  permanently  do  it,  if  they  try;  and 
they  do  immense  harm  while  they  try.  Their  "  bounty," 
instead  of  being  a  gift,  as  the  word  imports,  is  a  haphazard 
bestowment  of  other  people's  money  exported  from  them  by 
public  taxes.  The  problem  becomes  simpler  every  year  of 
public  experience  under  the  practical  design  of  so  laying 
the  public  burdens  as  to  realize  to  the  Treasury  the  most 
money  with  the  least  possible  interference  with  what  would 
otherwise  be  the  on-going  of  Exchanges  in  all  directions. 
So  relatively  simple  and  easy  has  the  English  taxing 
system  become,  under  this  one  leading  design,  that  Glad- 
stone performed  without  difficulty  the  functions  of  Chan- 
cellor of  the  Exchequer  in  conjunction  with  the  far  more 
arduous  and  complicated  duties  of  Prime  Minister. 

Low  taxes  on  few  things.  The  opposite  of  this  principle 
at  either  of  its  two  points  becomes  at  once  pernicious.  High 
taxes  in  general  prevent  exchanges  altogether,  by  cutting 
in  too.  deeply  in  the  gain  of  them,  which  is  the  sole  motive 
to  them  ;  high  imposts  prevent  importations,  and  of  course 
destroy  the  profitable  exportations  consequent  to,  and  con- 
ditioned on,  such  importations;  high  taxes  even  on  few 
things  are  apt  to  raise  prices  of  other  articles  than  those  on 
which  they  are  directly  levied,  and  so  become  objectionable 
always,  and  unbearable  whenever  it  is  their  purpose  to  raise 
such  prices  :  taxes  on  many  things,  and  even  on  few  things 
every  time  they  change  hands,  throw  an  indefinite  burden 
on  Exchange,  whose  weight  cannot  well  be  calculated 
beforehand,  either  by  the  consumer  or  by  the  government, 
through  uncertainty  as  to  the  number  of  transfers.  Once 
for  all,  and  then  an  end.  Exchanges  are  indeed  the  only 
legitimate  subject  of  taxation,  but  not  every  specific  and 
subordinate  exchange.  An  attempt  to  tax  all  sales  what- 


TAXATION.  569 

ever  was  followed  in  Spain,  and  will  be  followed  every- 
where, by  a  sluggish  indisposition  to  trade  at  all.  Let  the 
amount  of  the  tax  be  definite,  and  let  everybody  be  sure 
that  when  it  is  once  paid  government  will  produce  no  fur- 
ther claim,  and  industry  will  go  along  under  heavy  taxes 
better  than  under  those  nominally  lighter  to  which  uncer- 
tainty as  to  time  or  amount  attaches.  All  the  more  ad- 
vanced governments  have  been  simplifying  of  late  years 
their  systems  of  taxation,  and  collecting  their  revenue  at 
fewer  points,  and  under  more  tangible  conditions,  in  order 
to  interfere  as  little  as  possible  with  a  free  industry  and 
free  exchange. 

The  subsidiary  principle  is  important,  namely,  that  all 
taxes  should  be  collected  by  the  government  in  as  economi- 
cal a  manner  as  possible,  inasmuch  as  all  direct  and  indi- 
rect costs  of  collection  are  so  much  added  to  the  burdens 
of  the  People.  This  covers  two  practical  points :  (1)  the 
number  and  efficiency  of  the  tax-gatherers,  and  the  whole 
outward  machinery  of  collection,  such  as  "the  custom-houses, 
offices  of  internal  revenue,  and  so  on.  These,  as  they 
concern  the  whole  people  equally,  should  be  separated  as 
far  as  possible  from  party  politics,  and  the  inevitable  cor- 
ruptions thereupon  attendant.  All  the  fiscal  officers  of  the 
United  States,  from  the  Secretary  of  the  Treasury  down  to 
the  lowest  tide-waiter,  are  liable  to  be  changed  every  four 
years,  and  as  a  matter  of  fact  are  usually  to  a  very  large 
extent  so  changed,  to  the  great  detriment  of  the  service  and 
ultimate  expense  of  the  people,  to  say  nothing  of  the  moral 
losses  and  crevasses  involved.  (2)  The  tax-money  should 
be  kept  out  of  the  pockets  of  the  people  as  short  a  time  as 
possible,  disbursement  following  quick  upon  collection.  It 
is  poor  policy  to  gather  taxes  at  the  beginning  of  the  year 
which  will  not  be  disbursed  till  the  end  of  the  year.  Let 
the  people  use  their  funds  till  they  are  wanted  at  the 


570  PRINCIPLES    OF   POLITICAL   ECONOMY. 

treasury ;  and  if  the  taxes  do  not  then  come  in  as  fast  as 
wanted,  it  is  better  to  issue  what  are  called  in  England 
exchequer-bills,  and  in  the  United  States  certificates  of 
indebtedness,  to  be  redeemed  at  the  end  of  the  year  from 
the  proceeds  of  the  taxes,  than  to  let  the  people's  money 
lie  idle  in  the  treasury.  The  Secretary  of  the  Treasury 
should  have  nothing  to  do  or  say  about  the  circulating 
medium  of  the  country,  or  the  loanable  price  of  the  units 
of  it,  under  any  circumstances  whatever.  He  is  neither 
competent  enough  in  Knowledge  nor  enough  established 
in  Integrity  to  be  trusted  with  any  such  functions. 

11.  Should  there  be  any  EXEMPTIONS  from  Taxation? 
If  the  necessities  of  the  State  require  it,  government  has 
the  right  to  demand  from  all  persons  who  are  capable  of 
making  exchanges,  and  who   do   make   them,  something 
in  the  form  of  taxes.     But  it  is  every  way  better,  when 
possible,  that  people  of  very  moderate  means  should  be 
exempted  altogether  from  direct  taxes ;  and  the  payment 
of  indirect  taxes  is  a  matter  more  in  their  own  option, 
since  they  are  at  liberty  to  buy  much  or  little  of  those 
commodities  subjected  to  an  indirect  tax.     In  the  State  of 
Massachusetts,  incomes  not  exceeding  $2000  are  exempted 
by  the  law.     If  a  house-tax  should  be  levied,  all  houses 
below  a  certain  grade  of  style  and  comfort  should  be  ex- 
empted, and  the  tax  pass  up  by  easy  gradations  from  those 
just  taxed  to  the  palatial  residences  of  the  rich.     In  the 
present  age  of  the  world,  the  well-to-do  citizens  of  every 
country  are  able  to  bear  without  too  great  difficulty  the 
burdens  of  the  government,  and  nothing  tests  better  the 
degree  of  civilization  which  a  nation  has  reached  than 
the  care  and  solicitude  it  displays  for  the  welfare  of  its 
poorer  citizens. 

12.  Who  pays  the  INDIRECT  TAXES  ?     At  a  court  ball, 
Napoleon  the  First  once    observed   a   lady  noticeable  as 


TAXATION.  571 

richly  dressed  and  as  wearing  splendid  diamonds,  and  on 
asking  her  name,  found  that  she  was  the  wife  of  a  tobacco 
manufacturer  of  Paris;  it  occurred  at  once  to  the  quick 
mind  of  the  French  ruler,  that  the  State  might  just  as  well 
have  those  profits  as  an  individual ;  and  the  sale  of  tobacco 
in  all  its  forms  became  accordingly  a  State  monopoly, 
which  now  yields  about  400,000,000  francs  a  year.  That 
is  indirect  taxation.  So  is  the  British  and  United  States 
tariff  and  excise  on  tobacco.  Producers  and  dealers  and 
bankers  and  companies  add  the  tax  demanded  from  them, 
and  sometimes  more  than  the  tax  under  color  of  it,  to  the 
price  of  their  wares.  But  it  is  not  true  that  they  can  always 
realize  the  whole  of  this  enhanced  price.  Generally  they 
can.  sometimes  they  cannot.  If  the  article  be  one  of  ne- 
cessity, or  a  luxury  that  has  become  equivalent  to  a  neces- 
sity, and  there  be  no  other  source  of  supply  than  the  taxed 
one,  then,  as  a  rule,  the  tax  falls  wholly  on  the  consumer, 
and  is  a  matter  of  indifference  to  the  producer  or  dealer. 
But  the  usual  effect  of  an  enhanced  price  is  to  lessen  de- 
mand, and  if  the  article  is  dispensable,  or  its  consumption 
can  be  lessened,  or  it  can  be  obtained  elsewhere,  the  market 
will  be  sluggish  under  the  tax,  and  producers  or  dealers 
will  be  likely  to  tempt  it  by  lowering  prices,  in  other 
words,  by  sharing  the  tax  with  consumers,  and  paying 
that  share  out  of  profits.  This  is  the  principle.  Producers 
and  dealers  would  rather  the  tax  were  off.  Consumers 
generally,  but  do  not  always,  pay  the  whole  of  it. 

18.  What  is  to  be  said  about  the  DIFFUSION  of  Taxes  ? 
David  A.  Wells,  an  admirable  and  indefatigable  authority 
on  all  practical  questions  in  Economics,  though  perhaps 
less  skilled  in  scientific  classification  and  generalizations, 
several  years  ago  made  somewhat  prominent  in  public 
discussion  the  tendency  of  Taxes  to  diffuse  themselves. 
Much  more  has  been  written  about  this  than  is  actually 


572  PRINCIPLES   OF   POLITICAL   ECONOMY. 

known  about  it.  By  Diffusion  is  meant  that  it  does  not 
make  so  much  difference  upon  what  or  upon  whom  a  tax 
is  originally  levied,  because  the  tende'ncy  of  things  is  to 
diffuse  it,  that  is,  to  compel  others  to  assist  in  paying  the 
tax.  The  result  of  much  personal  reading  and  reflection 
on  this  point  is  the  conclusion  that  taxes  do  not  "  diffuse 
themselves  "  nearly  so  much  as  has  been  sometimes  sup- 
posed ;  and  that,  at  any  rate,  it  is  a  good  deal  better  to 
take  the  taxes  from  those  who  ought  to  pay  them,  than  to 
lay  them  at  random,  and  then  to  trust  some  unknown 
forces  to  make  them  afterwards  just.  It  is  certain  that 
some  unjust  taxes  cannot  be  diffused;  for  example,  the 
protective  tariff-taxes  paid  by  the  farmers  upon  articles 
of  necessary  consumption.  These  taxes  have  no  tendency 
to  raise  the  price  of  the  farmers'  produce,  for  that  is 
determined  by  the  foreign  market,  to  which  large  parts 
of  the  produce  are  exported.  For  such  taxes  the  farmers 
cannot  reimburse  themselves.  Taxes  that  affect  no  prices 
are  the  best  of  all ;  taxes  that  affect  prices  the  least  are 
the  next  best ;  and  taxes  that  are  designed  to  affect  prices 
are  the  very  worst. 

14.  What  are  the  bearings  of  the  UNITED  STATES  CON- 
STITUTION on  the  whole  matter  of  Taxation  in  this  coun- 
try ?  We  have  now  seen  pretty  fully,  what  the  science  of 
Economics  has  to  say  about  the  sources  and  modes  and 
results  of  tax-laying :  but  we  are  bound  to  tell  also,  what 
the  kindred  but  much  less  developed  science  of  Politics, 
and  particularly  what  the  Constitution  of  the  Fathers,  has 
to  say  upon  the  same  vitally  important  topics. 

(1)  The  first  power  granted  by  the  People  to  Congress, 
which  is  simply  their  agent,  in  that  Instrument  from  which 
each. of  the  three  great  Departments  of  Government  de- 
rives all  its  authority,  is  in  these  words,  exactly  copied 
from  the  original  and  official  parchment  in  every  par- 


TAXATION.  573 

ticular :  "  The  Congress  shall  have  Power  to  lay  and  collect 
Taxes,  Duties,  Imposts  and  Excises,  to  pay  the  Debts  and 
provide  for  the  common  Defence  and  general  Welfare  of  the 
United  States  ;  but  all  Duties,  Imposts  and  Excises  shall  be 
uniform  throughout  the  United  States"  This  grant  of 
power,  which  stands  first  in  order,  is  followed  by  seven- 
teen other  express  powers  granted  to  Congress  in  the  same 
eighth  Section  of  the  first  Article. 

There  never  has  been  any  difference  of  opinion,  and 
there  cannot  be  under  such  completely  explicit  language 
as  this,  among  competent  Statesmen  and  Commentators, 
as  to  the  exact  meaning  of  this  clause,  namely,  Congress 
is  given  power  to  lay  taxes  in  order  to  get  money,  with 
which  to  pay  the  debts  and  provide  for  the  common  de- 
fence and  general  welfare  of  the  United  States.  That  was 
the  opinion  and  purpose  of  every  member  of  the  Federal 
Convention,  that  framed  the  Constitution  in  the  summer 
of  1787  ;  of  Alexander  Hamilton,  who  was  first  called  on 
as  Secretary  of  the  Treasury  officially  to  interpret  it ;  of 
Daniel  Webster,  often  called  the  "  great  expounder  "  of  the 
Constitution ;  of  John  Marshall,  the  great  Chief  Justice  of 
the  Supreme  Court ;  of  Judge  Story,  the  first  copious  and 
most  distinguished  commentator  upon  the  Text ;  of  George 
Bancroft  and  George  T.  Curtis,  the  learned  and  elaborate 
historians  of  the  Text;  and  in  short,  of  everybody  else, 
who  has  earned  any  right  in  any  way  to  have  an  opinion 
on  any  such  matter  of  political  interpretation. 

Why,  then,  has  there  been  from  the  first  until  now,  a 
feeble  flutter  of  butterfly  wings  around  the  clause,  as  if, 
somehow  or  other,  it  gave  Congress  by  hook  or  by  crook 
some  power  or  other  to  do  something  else  than  to  lay  taxes 
in  order  to  get  money  for  the  maintenance  of  the  national 
Government?  As  if  there  lay  concealed  in  the  language 
somewhere  a  power  to  lay  taxes  for  a  purpose  precisely 


574  PRINCIPLES   OF   POLITICAL  ECONOMY. 

opposite  to  that  expressed  in  the  text,  namely,  nominal 
taxes  designed  to  prohibit  any  money  being  gotten  under 
them?  And  why  did  Hamilton  himself,  whose  wings  were 
those  of  an  eagle,  sweep  low  and  hover  uncertainly  about 
these  words,  and  so  give  color  to  the  political  historians  of 
our  time  to  say  :  "  Once  more  laying  hold  of  the  "  general 
welfare  "  clause  of  the  Constitution,  Hamilton  here  argued, 
under  color  of  giving  bounties  to  manufactures,  as  though 
Congress  might  take  under  its  own  management  every  thing 
which  that  body  should  pronounce  to  be  for  the  general  wel- 
fare, provided  only  it  was  susceptible  of  the  application  of 
money.  Though  he  limited  this  central  discretion  to  the 
application  of  money,  and  stated  some  restrictions  rather 
vaguely,  the  insidious  tenor  of  his  report  was  to  show  that 
the  Federal  power  of  raising  money  was  plenary  and  indefi- 
nitely great" 

The  true  answer  to  these  questions  is  a  point  of  Gram- 
mar. The  simple  English  infinitive,  unlike  the  simple 
infinitive  of  any  other  language  with  which  the  writer  is 
acquainted,  often  expresses  purpose,  as  well  as  the  action  of 
the  verb  without  limitation  of  person  or  number ;  so  that, 
it  is  perfectly  good  English  to  say,  "  To  lay  taxes  to  pay," 
when  the  only  possible  sense  of  it  is,  "To  lay  taxes  in 
order  to  pay"  Greek,  Latin,  and  German  would  use  here 
with  the  infinitive  the  particle  expressing  the  purpose : 
the  English  language  does  not.  It  is  not  true  to  say,  that 
ambiguity  enters  this  clause,  through  the  common  and 
elegant  use  of  the  simple  infinitive  in  English  to  express 
the  purpose  ;  but  it  is  true  to  say,  that  superficial  confusion 
has  entered  here,  and  a  mess  of  bad  logic.  What  makes 
it  absolutely  certain,  beyond  the  possibility  of  a  contro- 
versy, that  Congress  can  levy  taxes  only  in  order  to  get 
money  by  means  of  them,  is,  (a)  that  is  the  only  English 
of  the  clause ;  (b)  the  "  debts  "  of  the  United  States  can 


TAXATION.  575 

only  be  paid  in  money  ;  and  (c)  if  this  be  not  the  meaning 
of  the  clause,  its  meaning  must  then  be  plenary,  and  there 
would  be  no  need  or  place  for  the  remaining  seventeen 
powers,  "  and  all  other  powers  vested  by  this  Constitution 
in  the  Government  of  the  United  States  or  in  any  Depart- 
ment or  Officer  thereof " ;  in  other  words,  any  other  in- 
terpretation of  the  taxing  clause  than  the  plain  one  would 
destroy  the  Constitution  root  and  branch ;  for,  if  Congress 
have  the  general  power  "  to  pay  the  debts  and  provide  for 
the  common  defence  and  general  welfare  of  the  United 
States,"  all  other  possible  powers  are  included  in  this, 
and  President  and  Court  disappear,  and  all  other  clauses 
of  the  Text  are  a  nullity. 

If  the  above  course  of  reasoning  be  sound,  and  he  would 
be  a  bold  logician  who  should  openly  dispute  it,  then  taxes 
laid  for  any  other  end  than  revenue  are  clearly  unconstitu- 
tional. The  Supreme  Court  has  never  passed  upon  this 
bald  point,  for  it  has  never  been  mooted  in  this  form ;  but 
one  would  think,  there  can  be  little  doubt  how  the  judges 
would  decide  in  any  "  case "  directly  involving  the  con- 
stitutional power  of  Congress  to  levy  prohibitory  tariff- 
taxes,  whose  avowed  or  clearly  inferrible  design  it  is,  not 
to  get  money  with  which  to  pay  the  debts  and  so  on,  but 
to  cut  off  the  possibility  of  getting  any  money  thereby. 
The  general  trend  of  the  decisions  of  the  Supreme  Court 
has  wisely  been,  to  leave  in  their  interpretations  of  the 
Text  the  widest  margin  of  discretion  to  the  Legislative 
branch  as  to  the  best  means  of  raising  revenue  ;  but  when 
it  comes  to  face  the  question  of  allowing  as  constitutional 
the  best  means  of  preventing  revenue,  —  well,  may  we  be 
there  to  see  and  hear  ! 

(2)  There  are  prohibitions  on  Congress  in  the  Constitu- 
tion, as  well  as  powers  conferred,  and  among  these  this : 
"  No  tax  or  duty  shall  be  laid  on  Articles  exported  from  any 


576  PRINCIPLES    OF   POLITICAL   ECONOMY. 

State."  This  is  a  part  of  the  third  great  Compromise  of 
the  Constitution,  and  was  a  concession  to  the  southern  and 
planting  States  to  make  more  palatable  to  them  the  power 
"to  regulate  commerce,"  that  was  expected  to  be  used 
(and  was  used)  in  behalf  of  the  northern  and  navigating 
States.  But  the  concession  was  more  nominal  than  real, 
as  the  southerners  found  out  in  time  to  their  vexation. 
To  prohibit  taxes  on  exports,  and  to  leave  in  full  vigor  the 
power  to  tax  imports,  though  consonant  with  the  then  pre- 
vailing delusion  of  Mercantilism,  is  no  boon  to  commerce 
in  general ;  because,  any  restriction  on  buying  products  is 
equally  and  instantly  a  restriction  on  selling  products. 
Exemption  from  taxes  on  exports  is  a  good  thing  in  itself, 
but  the  only  reason  for  selling  exports  is  to  take  in  profit- 
able pay  the  imports  naturally  offered  against  them ;  and  if 
these  be  restricted  or  prohibited,  the  restriction  or  prohi- 
bition applies  instantaneously  and  inevitably  to  the  would- 
be  exports.  A  reasonable  liberty  of  exporting  is  nothing, 
unless  accompanied  by  a  reasonable  liberty  of  importing, 
because  the  imports  pay  for  the  exports  and  the  exports 
buy  the  imports. 

The  southern  States  rejoiced  for  a  time  in  this  exemp- 
tion-clause of  the  Constitution,  for  their  rice  and  cotton 
and  indigo  found  no  obstacles  in  going  out ;  but  the  only 
motive  in  sending  them  out  was  to  buy  something  with 
them  to  bring  back  ;  and  after  the  snare  of  Protectionism 
entangled  the  People  in  1816,  1824,  and  specially  in  1828, 
when  the  "  Tariff  of  Abominations "  was  passed,  the 
southern  people  saw  only  too  distinctly,  that  taxes  on 
imports  which  they  wished  to  bring  in  were  the  same  in 
effect  as  taxes  on  their  own  exports  would  have  been. 
Mr.  Calhoun  and  the  others  were  effectually  undeceived 
by  the  customary  on-goings  of  commerce ;  and  as  the 
northern  statesmen  unwisely  and  unpatriotically  deter- 


TAXATION.  577 

mined  to  crowd  this  iron  home  in  1828,  the  party  of  the 
other  part  developed  under  great  provocation  the  doctrines 
of  Nullification  and  Secession,  which  have  since  caused  a 
plenty  of  tears  and  bloodshed.  One  wrong  ever  begets 
other  wrongs.  The  wretched  Greed  of  one  section  of  the 
country  was  own  father  to  the  wrongful  Secession  of  the 
other  section. 

The  Farmers  of  this  country  have  often  been  congratu- 
lated on  their  privilege  under  the  constitution  of  export- 
ing their  agricultural  products  without  a  tax.  The  con- 
gratulation is  hollow.  Of  what  use  is  it  to  go  out  free  and 
come  back  manacled?  The  ultimate  is  always  the  return- 
service.  The  farmers  are  cheated.  Their  agricultural 
exports  are  falling  off  year  by  year  solely  in  consequence 
of  outrageous  tariff-taxes  on  imports.  In  1881,  farmers' 
produce  was  exported  to  the  amount  of  1730,394,943,  and 
that  was  not  one-half  what  it  would  have  been  under  a 
simple  and  adequate  Tariff  for  Revenues;  but  in  1889, 
these  exports  only  reached  1532,141,490,  a  falling  off  of 
nearly  $200,000,000.  This  decline  was  chiefly  in  meats 
and  breadstuffs.  No  wonder  the  farmers  have  been  com- 
plaining of  terribly  hard  times  of  late  years  :  no  wonder 
they  are  organizing  "  Alliances  "  and  other  machinery  for 
reaching  a  remedy :  they  must  see  clearly  first  where  the 
disease  lies  :  the  truth  is,  they  are  tariff-taxed  to  death : 
their  foes  are  they  of  their  own  household:  Vermont,  a 
purely  agricultural  State,  is  the  only  one  in  the  Union, 
that  has  actually  retrograded  in  property  and  population 
in  the  last  census-decade :  those  excellent  people  have 
hugged  the  Tariff-delusion  to  their  ruin ;  their  senior  Sen- 
ator, whose  name  is  unpleasantly  connected  with  the  na- 
tional tax-laws  of  a  generation,  has  never  yet  in  the  course 
of  a  long  and  reputable  life  gained  a  glimmer  of  the  com- 
mercial truth,  —  if  men  will  not  buy  they  can  not  sell. 


578  PRINCIPLES   OF   POLITICAL   ECONOMY. 

(3)  The  only  other  clause  of  the  Constitution,  which,  as 
students  of  Taxation,  we  are  bound  to  examine,  is  the  fol- 
lowing :  "  No  Capitation,  or  other  direct,  Tax  shall  be  laid, 
unless  in  Proportion  to  the  Census  or  Enumeration  herein 
before  directed  to  be  taken"  A  capitation  tax  is  a  poll-tax, 
which  may  be  easily  "  proportioned  "  to  the  Census.  It  is 
not  clear,  what  is  the  meaning  of  the  words  "or  other 
direct  tax  "  ;  the  Supreme  Court  early  struggled  with  that 
question,  to  this  apparent  result,  that  lands,  as  the  only 
form  of  property  that  can  be  "proportioned"  in  their 
appraised  value  to  population  with  any  considerable  degree 
of  accuracy,  are  the  only  "  other "  subject  of  "  direct " 
Taxation.  However  this  may  be,  it  is  of  considerable  con- 
sequence to  note,  that  the  term,  "direct  tax,"  as  used  in 
the  Constitution,  does  not  correspond  in  its  meaning  to  the 
significance  of  the  same  term  as  employed  in  Economics. 
With  us,  a  "  direct  tax  "  means  one  demanded  from  and 
paid  by  the  person  on  whom  it  is  ostensibly  levied,  and 
cannot  be  thrown  off  or  forward  on  anybody  else ;  while 
an  "  indirect  tax  "  is  one  which  can  be  so  thrown  off  or 
forward. 

Attention  is  called  to  the  distinction  here,  in  order  to 
show  that  an  Income-tax,  while  in  the  Economical  sense  it 
is  a  "  direct  tax,"  is  not  such  in  the  sense  of  the  Constitu- 
tion. Objections  were  urged  against  the  late  Income-tax 
in  this  country,  that  it  was  a  "  direct  tax,"  and  so,  because 
it  could  not  be  proportioned  to  the  population,  was  uncon- 
stitutional. The  point  is  not  w^ell  taken.  It  remains,  and 
will  remain,  after  the  most  searching  scrutiny,  that  an 
universal  Income-tax,  all  other  taxes  being  abolished,  is 
the  form  most  consonant  with  the  principles  of  Political 
Economy,  and  not  at  all  repugnant  to  the  Constitution  of 
the  United  States. 

15.   Finally,  are  there  any  hints  and  guides  to  thought 


TAXATION.  579 

and  legislation  in  the  matter  of  Taxation  through  an 
extremely  brief  summary  of  the  HISTORY  of  Taxes  ?  So 
far  as  the  Greeks  are  concerned,  they  showed  a  practical 
good  sense  in  their  laws  of  Property  in  general,  and  in  their 
laws  relating  to  Taxes  in  particular.  The  natural  march 
of  industry  and  commerce  was  not  hindered  by  taxation: 
there  was  no  forbidding  the  export  of  raw  materials  or 
specie  ;  no  favoring  of  manufactures  at  the  expense  of  agri- 
culture ;  no  hint  of  the  future  Mercantilism  in  any  efforts 
to  preserve  an  artificial  balance  of  trade ;  and  no  taxes  on 
imports  except  for  purposes  of  Revenue.  These  at  Athens 
itself  were  usually  2%  of  the  value  of  the  goods,  at  the 
ports  of  her  subject-allies  5%,  and  exceptional  cases  of 
higher  rates  than  these  were  regarded  as  extortionate. 

The  Romans  also  were  sensible  and  moderate  in  their 
modes  of  Taxation.  They  laid  taxes  for  the  sake  of  getting 
money  for  the  public  treasury,  and  had  no  other  end  in 
view.  They  knew  nothing  of  what  has  since  become 
famous  under  the  name  of  "  Protectionism."  Their  taxes 
were  both  direct  and  indirect,  but  especially  the  latter. 
The  chief  direct  tax  was  the  land-tax,  that  is,  a  claim  to 
the  tenth  part  of  the  sheaves  and  of  other  field  produce, 
such  as  grapes  and  olives ;  and  also  pasture-money  (scrip- 
tura)  demanded  of  those  who  made  use  of  the  public 
pastures  and  woods.  In  Macedonia  and  the  other  larger 
Provinces,  in  lieu  of  the  land-tax  a  fixed  sum  of  money 
(tributunf)  was  paid  to  Rome  each  year  by  each  community 
in  its  own  way.  The  grain-tenths  and  pasture-moneys 
were  always  farmed  out  to  private  contractors  or  companies 
on  condition  of  their  paying  fixed  quantities  of  grain  or 
fixed  sums  of  money.  The  chief  indirect  tax  was  customs- 
duties.  There  never  was  at  any  time  a  general  tariff  for 
the  whole  empire,  but  there  were  customs-districts,  such  as 
Italy,  Sicily,  proconsular  Asia,  the  province  of  Narbo  in 


580  PRINCIPLES    OF   POLITICAL   ECONOMY. 

Gaul,  and  others,  each  with  a  sort  of  tariff  of  its  own,  and 
some  with  special  immunities.  Goods  imported  by  sea  into 
Italy,  for  example,  not  for  the  personal  use  of  the  importer, 
were  subject  to  a  tax,  which  seems  to  have  been  mainly  a 
tax  on  luxuries,  since  pepper,  cinnamon,  myrrh,  ginger, 
perfumes,  ivory  and  diamonds,  are  among  the  dutiable 
goods  mentioned  in  one  of  these  tariffs.  Sicily  had  a  tariff- 
tax  quite  distinct  from  this,  since  one-twentieth  of  the 
value  of  the  goods  (5%)  was  levied  on  the  frontier  on  all 
imports  and  exports;  and  a  similar  tax  of  one-fortieth  was 
laid  by  the  Sempronian  law  on  the  province  of  Asia. 
These  imposts,  too,  were  leased  to  contractors,  which  gave, 
of  course,  some  chance  of  fraud  and  wrong.  There  were 
other  temporary  taxes,  like  those,  for  instance,  which 
Augustus  laid  of  5%  on  legacies  and  inheritances,  and  of 
1%  on  articles  publicly  exposed  for  sale. 

Green's  History  of  England  (I.,  322  et  seq.)  gives  an 
outline  of  the  taxes  there  from  the  beginning  of  the  mon- 
archy. As  land  was  almost  the  only  source  of  salable 
things  in  the  early  time,  so  it  was  almost  the  only  thing  on 
which  taxes  were  levied.  Danegeld  and  scutage  and  feudal 
aids  fastened  only  on  the  land.  "  But  a  new  principle  of 
taxation  was  disclosed  in  the  tithe  levied  for  a  Crusade  at 
the  close  of  Henry  Second's  reign.  Land  was  no  longer 
the  only  source  of  wealth.  The  growth  of  national  pros- 
perity, of  trade  and  commerce,  was  creating  a  mass  of 
personal  property  which  offered  irresistible  temptations  to 
the  Angevin  financiers.  No  usage  fettered  the  Crown  in 
dealing  with  personal  property,  and  its  growth  in  value 
promised  a  growing  revenue.  Grants  of  from  a  seventh 
to  a  thirtieth  of  movables,  household  property,  and  stock 
were  demanded.  The  right  of  the  king  to  grant  licenses 
to  bring  goods  into  or  to  trade  within  the  realm,  a  right 
springing  from  the  need  of  his  protection,  felt  by  the 


TAXATION. 


581 


strangers  who  came  there  for  purposes  of  traffic,  laid  the 
foundation  for  our  taxes  on  imports.  Those  on  exports 
were  only  a  part  of  the  general  system  of  taxing  personal 
property.  How  tempting  this  source  of  revenue  was  prov- 
ing, we  see  from  a  provision  of  the  Great  Charter,  which 
forbids  the  levy  of  more  than  the  ancient  customs  on  mer- 
chants entering  or  leaving  the  realm.  Commerce  was  in 
fact  growing  with  the  growing  wealth  of  the  people."  This 
passage  shows,  that,  as  a  matter  of  fact,  taxes  have  always 
hinged,  and  must  hinge,  on  trade. 

A  few  facts  in  the  most  recent  movements  of  national 
Taxation  in  the  United  States  may  fitly  conclude  this 
Chapter  and  this  Volume.  Since  1867,  Wool  and  Woollens 
have  been  the  ass,  upon  whose  breaking  back  the  most  con- 
spicuous burdens  have  been  piled;  and  the  "McKinley 
Bill "  so-called,  still  pending  at  the  present  writing  in  the 
Senate,  heaps  up  still  higher  the  groaning  loads.  The  fol- 
lowing table  shows  how  futile  is  the  attempt  to  keep  out 
wools  and  woollens  from  such  a  country  as  ours,  even  by  the 
most  exaggerated  barriers :  — 


IMPORTS  or  WOOLS  AND  WOOLLENS. 

(Calendar  Years.) 


Years. 

Wools. 

Woollens. 

1886  

$17,403,099 

$43,995,641 

1887 

15  645  020 

45  065  986 

1888 

14  542  244 

49  984  298 

1889   

18,696  277 

54  080  159 

1890  

(fiscal  vear^ 

56  582  000 

Roger  Q.  Mills  of  Texas  stated  from  his  place  in  the 
House  of  Representatives  in  1888,  that  the  United  States 
grows  but  about  265,000,000  Ibs.  of  wool  yearly,  while  it 


582  PRINCIPLES   OF   POLITICAL  ECONOMY. 

takes  about  600,000,000  Ibs.  to  clothe  our  own  people. 
Why  should  more  than  half  the  wool  needed  to  clothe  the 
people  be  taxed  in  such  a  way  as  to  double  (in  general) 
the  cost  of  the  people's  clothing  ?  And  why  should  Benjamin 
Harrison,  now  President  of  the  United  States,  have  said 
in  that  same  year,  in  view  of  these  elsewhere  unheard-of 
taxes,  and  in  view  of  the  average  climate  of  his  country, 
that  somehow  it  seemed  to  him  that  cheap  clothing  implied 
a  cheap  man  ?  In  view  of  the  enormous  natural  demand 
for  woollens,  in  order  to  keep  comfortable  day  and  night 
64,000,000  of  inhabitants,  is  it  not  strange,  and  must  there 
not  be  artificial  causes  for  it  in  the  kind  and  mode  of 
national  Taxation,  that  the  United  States  has  but  16  sheep 
to  the  square  mile,  while  Germany  has  92,  France  111,  and 
Great  Britain  339  ? 

Senator  John  Sherman  stated  in  his  place  in  August,  1888, 
and  again  in  substance  Sept.  2, 1890,  that  a  line  of  custom- 
houses on  our  joint-frontier  with  Canada  was  "  the  height 
of  nonsense,  and  almost  a  crime  against  civilization"  Well 
might  he  say  this  in  view  of  what  his  colleague,  Allison  of 
Iowa,  has  recently  said,  namely,  that  the  Dominion  bought 
in  1880  of  the  United  States  8%  of  its  brass  goods,  86% 
of  its  copper  manufactures,  94%  of  its  cordage,  88%  of  its 
gingham,  65%  of  its  glasswares,  99%  of  its  rubber  goods, 
94%  of  its  printing  ink,  92%  of  wooden  wares,  91%  of  tin- 
ware, 90%  of  wall-paper,  72%  of  paper  wares,  98%  of 
ploughs,  97%  of  engines,  99%  of  sewing-machines,  and 
90%  of  miscellaneous  machinery. 

The  imports  and  exports  of  the  United  States  for  the 
last  two  fiscal  years  are  as  follows :  — 


TAXATION. 


583 


1889. 

1890. 

Imports,  free                         .    ... 

§256,487,078 

$265,588,499 

Imports,  dutiable  

488,644,574 

523,633,729 

Total  

745,131,652 

789,222,228 

Exports 

742  401  375 

857  824  834 

r*t     t  1             i    rri               (  IlTlDOrtS 

28  963  073 

33  976  326 

Gold  and  Silver  |^°™  ; 

96,641  533 

52  148  420 

Total  Imports  

774,094,725 

823,198,554 

Total  Exports 

839  042  908 

909  973  254 

There  are  two  or  three  noticeable  points  from  this  table. 
First,  the  large  relative  increase  of  free  imports  over  those 
of  former  years.  Free  articles  in  1867  were  less  than  5% 
of  the  whole;  in  1882,  30%;  and  in  1890,  33.9%.  The 
Free  List,  so-called,  has  indeed  been  enlarged  in  the  inter- 
val, but  free  goods  tend  naturally  to  swell  over  the  taxed 
goods,  so  that  in  1890  the  free  were  almost  exactly  one- 
half  of  the  taxed.  Second,  of  the  large  total  of  merchan- 
dise exports,  it  is  to  be  sorrowfully  noted,  that  more  than 
82%  of  the  whole  is  made  up  of  the  products  of  agricul- 
ture and  forests  and  mines  (not  gold  and  silver) ;  while 
manufactures  compose  only  17.8%.  What  ails  our  manu- 
factures, that  we  cannot  sell  them  abroad?  We  have 
been  for  30  years  under  a  vaunted  scheme  warranted  to 
develop  manufactures,  —  expressly  designed  and  recom- 
mended to  make  them  cheap  and  good,  —  under  an  elabo- 
rate and  artificial  scheme  that  makes  everything  bend, 
even  the  backs  of  the  toiling  millions,  to  foster  and  propel 
manufactures  !  But  we  do  not  succeed  in  selling  much  of 
them  abroad,  except  some  fractions  of  them  to  Canada. 
The  ratio  of  them  to  the  total  of  exports  of  merchandise 
seems  to  be  growing  less:  in  1889,  18.9%  ;  in  1890,  17.8%. 

The  simple  truth  is,  that  we  are  able  to  sell  abroad  even 
this  beggarly  proportion  of  manufactures  to  the  total 
exports  of  merchandise,  only  in  consequence  of  a  shrewd 
device  working  within  the  Grand  Device,  namely,  the  so- 


584  PRINCIPLES    OF    POLITICAL   ECONOMY. 

called  "  Free  List."  Some  of  the  little  wheels  within  the 
big  wheel  revolve  rapidly.  Manufacturers  do  not  like  to 
pay  protectionist  tariff-taxes  themselves  any  better  than 
other  people  like  to  pay  them.  They  have  by  their  own 
open  confession  in  overt  act  precisely  the  same  opinion  of 
their  deadening  influence,  that  other  people  have.  If, 
however,  they  can  escape  such  taxes  on  the  things  they 
have  to  buy,  especially  their  raw  material,  and  keep  them 
on  their  own  finished  goods  offered  for  sale  in  a  monopoly 
market,  they  would  be  happy.  Hence,  the  Free  List. 
Hear  Senator  Dawes  before  the  Paper-makers'  Convention 
at  Saratoga  in  1887 :  "  There  is  one  other  feature  of  tariff 
revision  much  discussed  at  the  present  time  which  must  not 
escape  our  attention,  and  that  is  free  raw  material.  No 
industrial  policy  will  promote  the  highest  prosperity  of  both 
labor  and  capital  in  this  country,  which  fails  to  lay  down 
the  raw  material  at  the  door  of  the  manufactory  at  the  lowest 
possible  cost.  In  any  new  revision  of  the  tariff  this  rule  of 
preference  for  our  own  raw  material  must  be  adhered  to  by 
those  who  do  not  propose  to  give  up  the  American  for  the 
indifferent  policy  in  legislating  between  ourselves  and  for- 
eigners. IT  WILL  BE  FOUND,  HOWEVER,  TO  ADD  VERY 
FEW  RAW  MATERIALS  TO  THE  FREE  LIST,  FOR  THE  REVIS- 
IONS OF  1874  AND  1883  HAVE  ALREADY  MADE  FREE  ALL 
SUCH  NON-COMPETING  RAW  MATERIALS  AS  AT  THE  TIME 
OF  THE  PASSAGE  OF  THOSE  ACTS  WERE  ENTERING  TO  ANY 
CONSIDERABLE  EXTENT  INTO  THE  CONSUMPTION  OR  PRO- 
DUCTION OF  THE  COUNTRY." 

Till  now,  we  have  been  dealing  in  facts,  and  figures,  and 
in  careful  generalizations  after  the  inductive  manner :  let 
us,  at  the  very  last,  indulge  in  a  freak  of  fancy.  Suppose 
for  a  moment,  that  all  taxes  of  every  name  could  be 
abolished  instantaneously,  and  the  Governments,  like  the 
Israelites,  live  on  manna  for  forty  years.  What  harm 


TAXATION.  585 

would  ensue  ?  What  industry  would  decline  ?  Who 
would  be  impoverished?  What  stimulus  to  work  and 
save  and  grow  rich  would  be  weakened  thereby  ?  Would 
not  wages,  and  profits,  and  rents,  all  be  lifted  thereby,  with 
no  damage  to  anybody?  A  child  can  see  that  Taxes  from 
their  very  nature  are  a  burden,  are  a  subtraction  from 
income,  are  a  minus  and  not  a  plus.  Who,  then,  except 
from  sinister  motives,  can  imagine  and  represent,  that 
Taxes  are  a  good  in  themselves,  a  positive  blessing,  a  spur 
to  the  progress  of  Society  ? 

Taxes  of  some  sort  there  must  be  for  the  maintenance 
of  Governments,  which  are  established  for  the  good  of 
all.  Why,  then,  should  not  the  Taxes  be  just  as  few,  just 
as  simple,  just  as  comprehensible,  just  as  universal  and 
equitable,  as  is  consonant  with  the  single  end  of  their  exist- 
ence at  all  ? 


INDEX. 


A. 

Abraham,  9,  384. 

Abstinence,  93,  191,  338,  445. 

Abyssinia,  386. 

Activities  of  men,  1. 

Actors,  4. 

Act  of  Parliament,  127. 

Act  of  1624,  135. 

Adams's  inauguration  suit,  510. 

Administration,  358. 

Advalorem  rates  of  tariff  tax,  489,  558. 

Advantages  of  credit,  271. 

Advantages  of  discount,  302. 

African  macoute,  388. 

"  African,  tbe,"  158. 

Agent  of  the  mill,  4. 

Age  of  iron,  95. 

Ages  of  stone,  95. 

Agreeableness  of  rendering,  218. 

Agriculture,  149,  538. 

Alison  of  Iowa,  583. 

Alloy,  416. 

America,  3, 

American  capital,  166. 

Ames,  Fisher,  538. 

Amsterdam,  165,311,421. 

Analysis,  15. 

Ancient  Romans,  2. 

Annual  earnings,  543. 

Apprenticeship,  186,  203. 

Arbitration,  266. 

Aristophanes,  420. 

Aristotle,  47,  98, 158,  248,  381,  402. 

Aristotle's  Logic,  <M. 

Arkwright,  Richard,  109. 

Arlington  Mills,  510. 

Artisans  of  every  name,  2. 


Ascertainment,  15,  246. 

Asia,  19. 

Asia  Minor,  333. 

Asia,  pro-consular,  579. 

Association,  99. 

Assyria  and  Babylonia,  330. 

Astor,  J.  J.(  180. 

Astronomy,  63. 

Auction,  57. 

Augustus  Caesar,  392,  580. 

Australia,  252,  399. 

Axe,  90. 

Axioms,  69. 

B. 

Babylonian  tablets,  332. 

Bacon,  Lord,  63,  64. 

Bailee,  278. 

"  Balance  of  trade,"  312,  407,  452. 

Bales  of  cotton,  345. 

Ball,  John,  228. 

Balloon  of  promise,  343. 

Bancroft,  historian,  512,  573. 

Bangor,  454. 

Bank  bills,  286. 

Bank  defined,  291. 

Bank  deposits,  291. 

Bank  discount,  299. 

Bank  messengers,  5. 

Banker  defined,  6. 

"  Bankers'  bills,"  315. 

Bank  of  Amsterdam,  280. 

Bank  of  England,  82,  287,  292,  350, 

396,  448. 

Bank  of  Massachusetts,  288. 
Bank  of  New  York,  288. 
"Bank  of  North  America,"  288. 

587 


588 


INDEX. 


Bank  of  Scotland,  325. 

Banks  of  Newfoundland,  180. 

Barter,  364. 

Bascom,  John,  71. 

Bastiat,  47. 

Beauty  of  gold  and  silver  coins,  413. 

Beck,  Senator,  491. 

Benevolence    and    impertinence    in 

trade,  239. 

Bentham,  Jeremy,  252,  448. 
Benton,  Thomas  H.,  494. 
Berkshire  Co.,  Mass.,  260,  533. 
Berlin,  3. 

Berlin  Geographical  Society,  27. 
Bernhardt,  211. 
Bessemer  Steel  Co.,  487,  491. 
Best  money,  395. 
Best  tenure  of  lands,  155. 
Betterments  on  land,  173. 
Bill-discounters,  300. 
Bill  of  exchange,  278,  300,  303. 
Bill  of  lading,  378. 
"  Bills  of  credit,"  435. 
Bimetallism,  415. 
Bismarck,  210. 
"  Black  Death,"  227. 
Blacksmith's  capacity,  118. 
Blades  of  the  shears,  249. 
Elaine,  Secretary,  508. 
"  Blanket"  mortgage,  284. 
Blunders  in  economics,  75. 
"Body,"  78. 
Bombay  spinner,  201. 
Bonnieres  quarry,  164. 
"Book  of  Trades,"  114. 
Borrow,  277. 

Boston  Commercial  Bulletin,  563. 
Boston  Custom  House,  564. 
Botany,  63. 

Bottom-principle  in  taxes,  567. 
Bounty  of  God,  43. 
Bradford,  Governor,  391. 
Bradley,  Mr.  Justice,  358. 
Breadth  of  contracts,  241. 
Bright,  John,  199. 
British  colonies,  313. 
British  Isles,  84. 


British  Provinces,  527. 
British  Re  venue  Tariff,  485. 
British  statesman,  153. 
Brokers'  board,  302. 
Broker's  office,  6. 
Bronson,  434,  436. 
Brotherhoods,  226. 
Buchanan,  James,  447. 
Bullets  as  money,  392. 
Bullion  theory,  403,  451,  453. 
Bureau  of  Statistics,  264. 
Burman  Empire,  386. 
Buying,  14. 
Buying  and  selling,  4, 15,  236. 

C. 

Cakes  of  tea,  386. 
Calhoun,  Senator,  497,  499. 
Calicoes,  106. 
Canada,  179. 
Capital,  92,  96,  246. 
Capital  defined,  93. 
Capital  wears  out,  171. 
Capitalists  as  a  class,  233. 
Capitalists  of  Boston,  4. 
Captains  of  industry,  196,  244. 
Care  of  money,  378. 
Carey,  H.  C.,  103. 
Carpenter's  square,  38. 
Carthage,  21,  84. 
Carthaginians,  386. 
Cartwright,  Edmund,  111. 
Cases  and  classes,  68. 
"  Cash  accounts,"  333. 
Cash  credits,  324, 327. 
Cattle,  80. 

Cattle  as  money,  383. 
Causes  of  labor  troubles,  238. 
Cavour,  210. 
Cecil,  Robert,  126. 
Cedars,  23,  40. 
Census,  75. 
Central  America,  27. 
Chadwick,  Sir  Edwin,  197,  200. 
Chaldean  tablets,  331. 
Chalmers,  Thomas,  137,  215. 
Chase,  Chief  Justice,  356,  357. 


INDEX. 


589 


Chatham,  210. 

Chattels,  93. 

Check-Bank,  321,  329. 

Checks  on  market  rate,  56. 

Chemistry,  63. 

Cheques,  303,  317. 

Chevalier,  399. 

Chicago,  278,  477,  501. 

Chicago,  fire  in,  500. 

China,  19,  387. 

Chinese-wall  policy,  474. 

Christianity,  22,  30. 

Christians,  10. 

Church  relations,  241. 

Cicero,  97,  189,  248,  333,  403. 

Circular  credits,  327. 

"  Circular  notes,"  328. 

Circulating  capital  defined,  99. 

Civil  Law  of  Rome,  206. 

Civil  war,  353. 

Civil  wars,  260. 

Civilization,  10,  89,  252,  366. 

Claims  of  conscience,  243. 

Classes  of  facts,  66. 

Classes  of  salable  things,  7. 

Classes  of  valuable  things,  5,  62. 

"  Clearing  house,"  318,  321. 

Cleon,  421. 

Clergyman,  4. 

Clerks  at  the  clearing,  320. 

Clifford,  Mr.  Justice,  357. 

Clog  of  economy,  33. 

"Cloth-workers'  guild,"  258. 

Coal,  497,  527. 

Cobden,  Richard,  202. 

Codification,  206. 

Coffee  and  tea,  488. 

Cog-wheel  railway,  1. 

Cohoes,  3. 

COIN,  429. 

Coined  money  of  two  kinds,  426. 

Coke,  Lord,  89. 

Colbert,  404. 

Colonies  of  New  England,  249. 

Columbus,  26. 

Commerce,  17,  402. 

Commercial  credits,  49,  271. 


Commercial  crises,  347. 
Commercial  treaty  of  1860,  29. 
Commodatum,  276,  340. 
Commodities,  2,  8,  20. 
Commodities  defined,  80. 
Common  law,  9,  88,  130,  205. 
"Company,"  4. 

COMPANY  OF  THE  INDIES,  438. 
"Compete."  464. 
Competition,  44,  121,  175. 
"  Compromise  Silver  Bill,"  475. 
Conditions  of  production,  99. 
Conditions  of  a  science,  67. 
Conditions  of  trade,  15. 
Congress,  256,  288,  450. 
Connecticut,  100,  435. 
Conrad,  John,  183. 
"Consolidated  annuities,"  274. 
Consols,  285. 

Constancy  of  employment,  220. 
Constitution  of  the  United  States,  133, 
178,  256,  358,  444,  474,  494,  572,  578. 
Constitutional  law,  429. 
Continental  Congress,  441. 
Cooley,  Judge,  113. 
Co-operation,  268. 
Cooper  Union,  222. 
Copper  skewers,  385. 
Copyrights,  132. 
Corn  laws,  58, 177,  217. 
Cost  by  railway  mile  run,  233. 
Cost  of  capital,  161, 165,  231. 
Cost  of  labor,  161,  231. 
Costs  of  carriage,  466. 
Costs  of  production,  159,  165,  397,462. 
Cotton,  105. 
"Cotton  City,"  498. 
Cotton-gin,  100. 
Cottons  and  silks,  457. 
Coupons,  337. 
Court  calendars,  254. 
Craft-box,  226. 
Craftsmen,  259. 
Credit,  372. 
Credit-claims,  6. 
Credit  defined,  275. 
Credits,  8,  20.  58. 


590 


INDEX. 


Credits  are  capital,  338. 
Credits  as  taxable,  555. 
Crompton,  Samuel,  110. 
Crossed  cheques,  321. 
Current  rafce  per  centum,  165. 
Curtis,  George  T.,  573. 
Custom,  224. 
Customs-taxes,  238,  474. 

D. 

Damascus,  8. 

Davis,  Mr.  Justice,  357. 

Dawes,  Senator,  584. 

Dawn  of  history,  8. 

Dealer  in  services,  6. 

Debits  at  the  bank,  6. 

Debt,  its  etymology,  275. 

Debts  of  the  bank,  6. 

Decatur,  Commodore,  482. 

Decennial  Census,  519. 

Deduction,  62,  09. 

Deductive  sciences,  68. 

De  Foe,  100. 

Demand  acts  upon  value,  54. 

Demand  and  supply,  369. 

Demand  defined,  52,  190. 

Denarius  of  Rome,  238,  385. 

Denomination-dollar,  388,  390. 

Denominations  of  money,  372,  388. 

"  Depositaries,"  295. 

Deposit-banking,  293,  295,  297. 

Deposits,  296. 

Descartes,  68. 

Desires,  18,  64,  75,  138. 

Detroit,  491. 

Dey  of  Algiers,  482. 

Diffusion  of  taxes,  571. 

Diminishing  profits,  228. 

Direct  taxation,  553. 

Disadvantages  of  credit,  271,  343. 

Discount,  273. 

Discount  defined,  301. 

Diversity  of  advantage,  25,  102,  117, 

131,  136,  262,  455,  458. 
Divine  purpose,  26. 
Division  of  labor,  252,  257,  374. 
Dock  laborers'  strike,  313. 


Doctors'  fees,  204. 
Doctrine  of  chances,  221. 
Doctrine  of  rent,  146. 
Dollar-bill,  427. 
"  Dollars,"  359. 
Domestic  trade,  481. 
Dorsetshire  laborer,  223. 
Drachm,  385. 
Drawee,  329. 
Drawer  and  bearer,  330. 
Duke  of  Orleans,  437. 
Durability  of  machinery,  168. 
Dutch  capital,  166. 
Dutch  East  India  Co.,  280. 
Duty,  65. 

E. 

Easiness  of  learning,  219. 

East  India  Co.,  114,  132. 

Economics,  31,  40,  64. 

Efficiency,  164. 

Efforts,  20,  59. 

Efforts  and  renderings,  32. 

Egypt,  9,  11,  24. 

Electricity  and  lightning,  70. 

Elliott,  Ebenezer,  202. 

Ely,  Professor,  251. 

"  Empire  State,"  286. 

English  recoiuage,  422. 

English  shilling,  317. 

Enlarging  wages,  228. 

Ephron,  9,  384. 

Equation  of  international  demand,468, 

Erie  Canal,  286. 

Estimates,  22,  34,  39,  43,  60. 

Ethics,  64,  75. 

Etymology,  37. 

Etymology  of  "  credit,"  275. 

Euphrates  country,  392. 

Euripides,  237. 

Europe,  9. 

Evarts,  William  M.,  73. 

Exact  sciences,  63,  65. 

"  Exchange  against,"  314. 

"  Exchange  in  favor,"  315. 

Exchequer,  549,  568. 

Excise  tax,  550. 


INDEX. 


591 


Exemption  from  taxes,  570. 

Experience  and  experiments,  65. 

Exports,  4«2. 

Exposure,  15. 

Ezekiel  the  prophet,  11,  83. 

F. 

Fallacies  of  protectionism,  503. 

Fallacy  A,  504. 

Fallacy  B,  508. 

Fallacy  C,  516. 

Fallacy  D,  520. 

Fallacy  E,  524. 

Fallacy  F,  529. 

Fallen  market  rate,  55. 

Fall  of  valuables,  49,  77. 

Falsities  of  protectionism,  535. 

"  Farmer,"  156. 

"  Farmers'  Alliances,"  519. 

Farmers  of  United  States,  577. 

Fawcett,  Professor,  223. 

Federalists,  the,  537. 

Fees  of  preachers,  206. 

Feigned  cases,  65,  73. 

Feudalism,  248. 

Field,  David  Dudley,  206. 

Field,  Mr.  Justice,  357,  360. 

Field  of  investigation,  1. 

Field  of  the  science,  540. 

Fire  Insurance  Co.,  298. 

First  difficulty  in  money,  361. 

"Five  articles,"  485. 

"  Five-twenties,"  285,  355. 

Fixed  capital  defined,  99. 

Fluency  of  gold  and  silver,  401,  407. 

Foreign  bills  of  exchange,  306,  336. 

Foreign  trade,  454, 462. 

Forms  of  credit,  271. 

France  and  England,  30. 

France  and  England  in  trade,  456. 

Franklin,  Benjamin,  436,  538. 

Franklin's  experiment,  69. 

Fraud,  16. 

Freak  of  fancy,  584. 

"Free,  breakfast  table,"  488. 

Free  list,  583. 

Freedom,  99,  112. 


French  "francs, "317. 
French  government,  56. 
French  lands,  156. 
Fruit  dealer,  366. 
Funds,  British,  284. 
Future  time  in  credit,  273. 

G. 

Gambling,  347. 

Gangs  of  slaves,  100. 

Garibaldi,  211. 

General  rise  of  prices,  348. 

Generalizations,  7, 67. 

Genesis,  Book  of,  143. 

Genus,  7. 

George,  Henry,  142,  147,  151,  174.    ' 

Georgia,  441. 

German  Empire,  133. 

German  "  Mark,"  317,  393,  413. 

Germans  in  Italy,  292. 

Gibbon,  historian,  130. 

Gift,  16. 

Gifts  of  God,  86. 

Giving,  15. 

Gladstone,  W.  E.,  151,  153,  172,  568. 

Glasgow,  137. 

Gloversville,  103. 

Glut  of  products,  140. 

Gold  and  silver  divisible,  412. 

Gold  and  silver  impressible,  412. 

Gold  coins,  409. 

Gold  eagle,  35. 

Gold  eagle  of  United  States,  389. 

Gold  in  greenbacks,  356. 

Goodhue  of  Massachusetts,  496. 

Gould,  Jay,  204. 

Government  a  committee,  252,  481. 

Governments,  29,  267,  409. 

Gradual  occupation  of  the  earth,  154. 

Graduated  income  tax,  549,  550. 

Grains,  57,  87. 

Grand  Device,  583. 

Grand  Trunk  Railway,  163. 

Grant,  General,  358,  359,  408,  500. 

Gratuitous  elements,  144. 

Gravitation,  363. 

Great  Britain,  313. 


592 


INDEX. 


Greek  cities,  384. 

Greek  language,  298. 

Greeks,  73. 

Greeley,  Horace,  129. 

Greenback  dollar,  476. 

Greenbacks,  51,  280,  290,  409,  425,  432. 

Green  Mountains,  519. 

Green's  History,  9,  580. 

Gresham's  Law,  421. 

Gresham,  Sir  Thomas,  421. 

Grier,  Mr.  Justice,  357. 

Ground  of  taxes,  542. 

Ground  of  trade,  25. 

Grounds  of  production,  116. 

Guild  of  Armorers,  226. 

"Guildhall,  "226. 

Guilds  of  the  Middle  Ages,  258. 

H. 

Hamilton,  Alexander,  288,  393,  415, 

511,  536,  573. 
"Handsome  is  that  handsome  does," 

250. 

Hargreaves,  John,  106. 
Harrison,  President,  582. 
Harrison's  inaugural  suit,  511. 
Hartley  of  Pennsylvania,  495. 
Health,  113. 
Hebron,  9,  81,  83. 
Henry  II.,  580. 
Hepburn  vs.  Griswold,  356. 
Herodotus,  386. 
Heyd,  Dr.  W.,  27. 
Hildreth,  historian,  512. 
Hills  of  Judah,  25. 
Hindoo  rice,  393. 
Hired  men  lack  motives,  255,  208. 
History  of  taxes,  579. 
Hoar,  Judge  E.  R.,  358. 
Holland,  280. 

"Home  Market  Club,"  516. 
Home  Rule,  173. 
Homer,  81,  383. 
Homer,  Sidney,  351. 
Hoosac  River,  27. 
Hoosac  Tunnel,  286. 
Horse-leech  cry,  514. 


House-tax,  555,  570. 

Hudson's  Bay  Company,  114,  180. 

Hull,  John,  434. 

Human  efforts,  89. 

Human  nature,  363. 

Hume,  David,  121,  124,  326,  373. 

"  Hymn  to  the  Nativity,"  149. 


Ideal  dollar,  426. 

Idle  capital,  191. 

Iliad,  81,  383. 

Illinois  Central  Railway,  232. 

Impeachments,  253. 

Imports,  472. 

Improvements  in  machinery,  465. 

Income  bonds,  284. 

Income  tax,  547,  549,  578. 

Indented  servants,  249. 

India,  26. 

Indirect  taxation,  553,  570. 

Individuals  vs.  Government,  253. 

Indorsements,  304. 

Induction,  62,  397. 

"  Infant  industries,"  514. 

Infinite  Mind  at  work,  363. 

"  In  God  we  Trust,"  413. 

Inland  bills  of  exchange,  306,  336. 

Inquiry,  78. 

Internal  taxes,  560. 

International  demand,  460. 

"International  Copyright,"  213. 

International  exchange,  330. 

Introspection,  65,  67,  71,  77. 

Invention,  99,  104. 

Invention  of  money,  366. 

Ireland,  386. 

Irish  banks,  288. 

Irish  Land  Bill,  152. 

Irish  leases,  173. 

Iron  Mountain,  526. 

Iron  in /Tennessee  Valley,  565. 

Irving,  Washington,  180. 

Israelites,  584. 

Issuer  and  bearer,  255,  427. 

Italy,  150. 


INDEX. 


593 


.Jack-knife,  94. 

Jacob,  9. 

Jacobites,  292.  422,  431. 

Jamaica  rum,  496. 

Jamestown,  Va.,  163. 

Jay,  John,  537- 

"Jealousy  of  Trade,"  121. 

Jefferson,  Thomas,  415,  424,  442 

Jerusalem,  12,  24 

Jevons,  Professor,  317,  381,  399. 

Jews,  9,  10,  21,  24,  240,  333,  444. 

Job,  the  Book  of,  83,  397. 

Jonson,  Ben,  88. 

Joppa,  22,  23. 

Judges,  4. 

K 

Kay,  father  and  son,  106 
Kentucky,  491. 

Key  to  unlock  difficulties,  364. 
Kinds  of  tariffs,  two,  483. 
Kinds  of  utility,  44. 
King  Hiram,  11,  16,  364. 
King  Philip's  victories,  392. 
King  Solomon,  11,  16,  364. 
Kinkiness,  105 
•'Knit-goods  Bill,"  488. 
Knox,  Comptroller,  433. 
Knox  vs.  Lee,  359. 
Kountze  Brothers,  328. 

L 

Labor,  182 

"  Labor  and  Capital,"  183. 

Labor  defined,  90, 161,  184. 

Laborers,  4,  184,  186 

Laborers  as  a  class,  233. 

Labor-troubles,  237. 

Laissez  fcnre,  252. 

Land  Bill,  1881.172. 

Land  parcels,  146,  170. 

Lands,  141 

Lapoint,  Alfred,  130. 

Latin  Union,  414, 

Law,  John,  H41,  436,  440 

Law  of  diminishing  returns,  153,  172 


Law  of  supply  and  demand,  52,  53. 

Laws  of  Moses,  443. 

Lawyers,  4. 

Layard,  330,  384. 

Legal  rate  of  interest,  234- 

Legal  ratio  of  gold  and  silver,  393. 

Legal  restrictions,  225. 

Legal  tender,  355,  356,  359. 

Legislators,  4,  270,  377,451. 

Life  Insurance  Co.,  298. 

Lightning-rod,  70. 

Limestone,  527- 

Limits  of  production,  136. 

Limits  of  value,  58. 

Lincoln,  Abraham,  210. 

Lind,  Jennie,  186. 

Liverpool,  455,  528. 

Loan,  276. 

Loaves  of  bread,  379. 

Locke  and  Newton,  423. 

Lockouts,  247,  266,  521. 

Locomotives,  233. 

Logic,  63. 

Logical  fallacies,  534. 

London  bills,  310. 

London  bills  of  exchange,  469. 

London  Bridge,  2,  3,  313 

Lord  Mayor  of  London,  265. 

Losses  from  depreciated  money,  478. 

Louisiana,  438. 

Lowell,  3. 

Lowell  and  Jackson,  497 

Lowell  mill,  7. 

Lowell  on  the  Merrimack.  498. 

Lowering  rates  of  interest,  234. 

Lowndes,  Congressman,  498. 

Low  taxes  on  few  things,  568. 

Lucretius,  95. 

M. 

Macaulay,  123,  422. 
McCulloch,  Hugh,  359. 
Macedonia,  579. 
Machinery,  197,  200. 
McKinley.  508,  516,  563,  581. 
Macleod,  Henry  Dunning,  47,  278,  292, 
382,  383. 


594 


INDEX. 


Machpelah,  82,  305. 

Madison,  James,  494,  538. 

Magellan,  26. 

Magna  Charta,  444,  581. 

Major  Premise,  63. 

Malthus,  T.  R.,  215. 

Manager  at  the  Clearing,  5,  320. 

Mania,  16. 

Market  defined,  137. 

Market  for  products,  54. 

Market  value,  54. 

MARKETS,  195. 

Marshall,  Mr.  Justice,  358,  573. 

Mason's  trowel,  38,  98. 

Massachusetts,  286. 

Material  commodities,  49. 

Maximum  value,  61 . 

Mechanics,  42. 

Mediterranean,  23. 

Mercantile  sagacity,  140. 

Mercantile  system,  115,  312. 

Mercantile  Theory,  403,  452. 

Mercantilism,  576. 

Merchant  defined,  6. 

Merchants  as  a  class,  9. 

Messengers  at  the  Clearing,  320. 

Metaphysics,  64,  75,  242. 

Methods  and  motives  in  foreign  trade, 

481. 

Methods  of  mining,  398. 
Metric  system,  419. 
Metropolitan  Museum,  332. 
Mexican  exports,  479. 
Mexican  imports,  479. 
Mexicans,  105. 
Mill,  John  Stuart,  32,  63. 
Miller,  Mr.  Justice,  47,  357. 
Mills,  Roger  Q.,  581. 
Milton,  150. 
"  Mind-cure,"  263. 
Mint  of  Amsterdam,  422. 
Mississippi  Valley,  519. 
Mobility  of  laborers,  221. 
Molasses,  496. 
Molasses  tax,  538. 
Mommsen,  238. 
Monetary  Conference  at  Paris,  73,  74. 


Monetary  "  par,"  471. 
Money,  77,  361,  367. 
Money  a  measure,  380,  415. 
Money  a  "  medium,"  370. 
Money  a  tool,  377. 
Money,  current,  51. 
Money  defined,  380. 
Money  divisible,  374. 
Money  is  capital,  374. 
Monopoly,  88,  121. 
Montesquieu,  388. 
Moody's  "power-loom,"  497. 
Moore,  Sir  Thomas,  536. 
Moors  from  Africa,  481. 
Moral  sciences,  63. 
Morals,  113,  248. 
Morrill,  Senator,  518. 
"  Morrill  Tariff,"  521,  533. 
Morris,  Gouverneur,  539. 
Morris,  Robert,  415. 
Moses,  11. 

Motives  of  Protectionists,  493. 
Motives  to  trade,  77. 
Mountain  view,  1. 
Mountains  of  Israel,  25. 
Mount  Lebanon,  23,  364. 
Mozart,  211. 
Munn,  Dr.,  204. 
Murillo,  56. 
Muscular  effort,  189. 
Musicians,  4. 
Mutuum,  276. 
Myers,  P.  V.  N.,  332. 

N. 

Names  on  notes,  301. 
Napoleon,  the  First,  134,  570 
Narbo  in  Gaul,  579. 
National  Bank,  289. 
National    Banks    of    United    States 

428. 

National  Debt,  351. 
National  Labor  Commissioner,  528 
Nationalism,  251,  256. 
Nature,  102. 
Nature  of  Credit,  271. 
Natural  agents,  85,  86. 


INDEX. 


595 


"Natural  monopolies,"  136. 

Nebuchadnezzar,  332. 

Nelson,  Mr.  Justice,  357. 

Nevada  mines,  411. 

New  England,  145. 

New  Hampshire,  36,  441. 

New  Jersey,  502. 

New  Orleans,  438,  454. 

New  Testament,  12. 

New  York,  165,  477. 

New  York  Central  Railway  Co.,  491. 

New    York    Clearing-House,    5,    7, 

319. 

"New  York  Public, "350. 
Nickel  pieces,  394. 
Non-capital,  97. 
North  Carolina,  92. 
Nottinghamshire,  163. 
Novgorod,  in  Russia,  386. 
Nullification,  577. 

O. 

Objective  and  subjective,  31. 

Objective  realities,  76. 

Obligation  in  credit,  275. 

Ocean  freights,  474. 

O'Connell,  Daniel,  177. 

Ohio  sheep,  530. 

"  Oil  Trust,"  179. 

Oklahoma,  221 

Old  Testament,  11. 

Open  ports  of  Great  Britain,  474. 

Operatives,  4. 

Opinions  on  Protectionism,  535. 

Orders  to  pay,  328. 

O'Reilly's  poem,  208. 

Oresme,  Nicole,  98. 

Origin  of  capital,  95, 

Oscillations  of  demand,  408. 

"  Oitf/ht,"  65. 

Ounce  of  silver,  36. 

Our  Lord,  12. 

Outlying  cases,  142. 

Overseers  of  the  mill.  4. 

Owners,  38. 

Oxford  University,  340. 

Oxus  River,  27. 


P. 

Pacific  States,  418. 

Paganini,  187. 

Palermo,  455. 

Palfrey,  historian,  512. 

Paper-makers,  197. 

Paper-makers'  convention,  584. 

Paper  money,  427,  429. 

Par  of  Exchange,  307,  316. 

Par  of  foreign  exchange,  468. 

Paradise  Lost,  88. 

Parcels  in  the  Clearing,  6. 

Paris,  3,  57. 

Paris  bills  of  exchange,  470. 

Parliament,  284. 

Past  time  in  commodities,  274. 

Patent  rights,  132. 

Paul,  Lewis,  109. 

Pauper  labor  of  Europe,  528. 

Payer  and  payee,  329. 

Peace,  29. 

Peas  and  potatoes,  272. 

Peasant  proprietor,  157. 

Peculiarities  of  Credit,  271. 

Pecuma,  81,  384. 

Pence  and  pound,  389. 

Pennsylvania,  436,  490. 

Personal  services,  181. 

Personal  slavery,  80. 

Persons  in  credit,  275. 

Petals  of  Mowers,  70. 

Pheidon,  King  of  Argos,  384. 

Philip  le  Bel,  404. 

Philpott,  editor,  521. 

Phoanicians,  21 

Physical  sciences,  32,  63,  64,  71. 

Physicians,  4. 

"  Physiocrats,"  141. 

Physiology,  216. 

Pierre  and  Company  of  Paris,  307. 

Piers  Ploughman,  228 

Pig-iron  production,  5(50. 

Pilgrims,  391. 

Pillars  of  Hercules.  84. 

Pine-tree  shillings,  392. 

Plato,  248. 

Pliny,  384. 


596 


INDEX. 


"  Political  Economy,"  15,  174. 
Polo,  the  traveller,  387. 
"  Pool,"  the,  2. 

Poor  Richard's  Almanack,  158,  243. 
Poor's  Railroad  Manual,  229. 
Popular  remedies  lor  low  wages,  251. 
Portability  of  money,  411. 
Porter,  Dr.  Samuel,  28. 
Porters,  2. 

Portfolio  of  governments,  254. 
Post  hoc  ergo  propter  hoc,  534. 
Post  Offices,  256. 
Potosi,  silver  of,  398. 
Pottery  wares,  502. 
Pounds  sterling,  310. 
"  Power,"  91. 
"  Power-loom,"  111. 
Preamble  of  the  Constitution,  256. 
Present  time  in  services,  274. 
President  Jackson,  289. 
Press  and  Pulpit,  244. 
Price,  50. 

Price,  Bonamy,  338,  382. 
"  Prices  current,"  50. 
Prices  of  services,  375. 
Prices  under  taxation,  549. 
Principle  of  taxes,  546. 
Privy  Council,  350. 
Probabilities,  347. 
Probability  of  success,  220. 
Proculius,  451. 
Production  defined,  84. 
Products  in  market,  54. 
Profitable  exchanges,  473. 
Profits  the  leavings  of  wages,  235. 
Progress  of  civilization,  10. 
Promise  to  pay,  279. 
Promissory  notes,  300. 
Property,  101,  275,  545. 
"  Property  is  theft,"  149. 
Prophets,  94. 
Proportion  of  taxes,  544. 
"  Protectionism,"  309,  453,  493. 
Protectionism  is  prohibition,  486. 
Proverbs,  12. 

Providential  elements  in  Economics, 
362. 


Prudhou,  148. 
Prussians,  549. 
Public  opinion,  451. 
"Pulpit  or  Platform,"  22. 

Q. 

Quality  of  gold  uniform,  411. 

Quantity  of  metals,  399. 

Queen  Elizabeth,  123. 

Questions  of  taxes,  541. 

"  Quick  sales  and  small  profits,'1  344 

Quittance,  354. 

R. 

Randolph,  John,  598. 

Rapidity  of  circulation,  372,  409. 

Rate  of  interest  in  Holland,  234 

Rate  of  taxes,  556. 

Rates  of  discount,  316. 

Ratio  of  gold  and  silver,  74. 

Raw  materials,  52(5. 

Redemption  of  greenbacks,  291. 

lieligion  higher  than  morals,  263. 

Remedies  for  labor  troubles,  238. 

Renderings,  26,  59,  76,  78. 

Rent,  160,  169. 

Rent  defined,  170. 

Republic  of  Mexico,  478. 

Republic  of  Venice,  291. 

Requisites  of  production,  84. 

Return  services,  138. 

Revenue,  113. 

Revenue  rights,  134. 

Ricardo,  David,  146,  153,  169,  176, 

Right  and  wrong,  65. 

Rise  in  market  rate,  55,  77. 

Rise  of  prices,  408 

Rise  of  valuables,  49. 

"  River  and  Harbor  Bill,'*  488. 

Roach,  John,  516. 

Robinson  Crusoe,  100. 

"Rogues'  Island,"  441. 

Roman  coins,  385. 

Roman  Law,  277. 

Roman  mercantile  transactions,  238. 

Roman  taxes,  579. 

Romans,  313,  402,  579. 


INDEX. 


597 


Royal  Bank  of  France,  438. 
Royal  library  at  Nineveh,  384. 
Ruggles,  S.  B.,  74,  418. 
Rupee,  386. 
Russia,  150. 

S. 

JSabimis  and  Cassius,  451. 
Salary-class,  184. 
Salt,  178. 

San  Francisco,  455. 
Sandal-wood,  23. 
Sardanapalus,  331. 
Satisfactions,  28,  75,  115. 
Savannah,  527. 
Savings  banks,  270,  334. 
Saxon  ancestors,  93. 
Say,  J.  B.,  137. 

Scandinavian  "  crown,"  317,  393. 
"  Scarcity  "  of  money,  440. 
Schouler,  James,  511. 
Science  as  prophetic,  450. 
Science  defined,  62. 
Science  of  buying  and  selling,  61. 
Science  of  value,  42. 
Scotch  banking,  325. 
Scotch  banks,  288. 
Scotland,  437. 
Scott,  W.L.,265. 
Screw  of  Discount,  316. 
Scriptures,  9,  14. 
Scudder,  M.  L.,  478.  V 
Secession,  577. 

Second  difficulty  in  money,  362. 
Secretary  of  the  Treasury,  296. 
Semprouian  law,  580. 
Services,  7. 
Servius  Tullius,  384. 
"  Seven-thirties,"  285. 
Shakspeare,  88,  98, 211. 
Shears,  91. 
Shekels,  9. 

Sherman,  Senator,  48,  490,  582. 
Shoddy,  130. 

"Shoemakers'  Guild,"  258. 
Shut-downs,  521. 
Shuttle,  91. 


Shylock,  98. 

Sicily,  580. 

Silks  and  cottons,  457. 

Silo,  154. 

Silver  certificates,  279. 

"  Silver  Colony,"  392,  442. 

Silver  dollar,  418. 

Six  kinds  of  exchanges,  8. 

Skilled  laborers,  186. 

Smith,  Adam,  114,  385,  398,  448,  536. 

Smith,  Captain  John,  163. 

Smith,  Jonathan,  205. 

Smithson,  James,  214. 

Social  relations,  241 .  — 

Society,  5,  18. 

Sociology,  242. 

Solomon,  18. 

Somers  and  Montague,  423. 

Sons  of  Heth,  9. 

Source  of  taxes,  543. 

Sources  of  income,  three,  547. 

South  Carolina,  435,  497. 

Spain,  taxes  in,  569. 

Spanish-Mexican  dollar,  424. 

Spanish  milled  dollar,  415. 

Spaulding,  E.  G.,  354. 

Speaker  of  Commons,  127. 

Specialties,  103. 

Species,  8. 

Specific  rates  of  tariff-tax,  489. 

Specific  taxes,  558. 

Speculation,  476. 

Speculation  proper,  346. 

Spencer,  Herbert,  341. 

Spinning,  106. 

Spinning-Jenny,  108. 

"  Springfield  Republican,"  265. 

St.  Louis,  114. 

St.  Petersburg,  455. 

St.  Timothy,  242. 

Standard  of  comparison,  377. 

Stanford,  Senator,  439. 

"  Star  Route  Frauds,"  256. 

State  banks,  288. 

States  and  nation,  69. 

Statistics,  230. 

Statute  law,  9. 


598 


INDEX. 


Stealing,  15. 

Steel  beams,  564. 

Steel  rails,  487,  490. 

Sterling  exchange,  472. 

Stephenson,  Robert,  129. 

Stock,  284. 

Stock  Exchange,  347. 

Stockholm,  455. 

Storrs,  Dan,  303. 

Story,  Mr.  Justice,  573. 

"  Straddles,"  347. 

Straits  of  Gibraltar,  481. 

Strikes,  247,  261,  521. 

Strong,  Mr.  Justice,  359. 

"  Subdue,"  144. 

Sub-forms  of  capital,  99. 

Subject  of  money  clear,  361 

Subject  of  Political  Economy,  1. 

Subjective  elements,  39. 

Subsidiary  coins,  394,  418,  425,  433. 

Sub-treasury  of  United  States,  319. 

Sugar  and  molasses,  as  taxed,  567. 

' '  Suppliants  "  of  Euripides,  237. 

Supply  and  demand,  36,  445. 

Supply  defined,  53. 

Supply  of  laborers,  219- 

Supreme  Court,  575. 

Supreme    Court    of    United    States, 

360. 

Suspension  of  specie  payment,  431. 
Swank,  James  M.,  565. 
Swayne,  Mr.  Justice,  357. 
Syllogism,  69. 

T. 

Taconics,  27. 
Tailor's  capacity,  119. 
Talents,  Parable  of,  13. 
Tariff,  128,  481. 
Tariff  defined,  483. 
Tariff  delusion,  577. 
Tariff  for  revenue,  483. 
Tariff  Monopolies,  134. 
"  Tariff  of  Abominations,"  576. 
Tariff  of  United  States,  487. 
Taussig,  Professor,  128,  488. 
Taxation,  363,  540. 


Tea  and  coffee,  488,  492. 

Teachers,  4. 

Temple  at  Jerusalem,  364. 

Temple,  Lord  Richard,  199,  202,  544. 

"Thaler,"  393. 

Theft,  16. 

Thing-dollar,  427. 

Third  nation  in  trade,  459. 

Thompson,  Professor,  516. 

Thoughts,  64. 

Ticket,  a  general,  371. 

Time  of  advance,  166. 

Tobacco  of  Virginia,  369. 

Tobacco  taxes,  571. 

Tools,  95. 

Trade,  10,  73. 

Trades-unions,  226,  258. 

Treasurer  of  the  mill,  4. 

Trebizond,  27. 

Tree- wool,  105. 

Troughton's  inch,  390. 
I   Trust,  10. 
|   Trustee,  278. 

Tubal  Cain,  95. 

Tunis  and  Tripoli,  482. 

Tyre,  11,  83. 

Tyrians,  19,  22. 

U. 

Ulpian,  277. 
"  Ulster  right,"  224. 
Ultimate  elements,  31. 
Union  Bank  of  London,  328. 
Unique  cases,  46. 

United  Kingdom,  171,  203,  393,  406. 
United  States,  140,  165,  247,  288,  380, 

405,  415,  450. 

United  States  Bank,  288,  289,  293. 
United  States  Money,  310. 
United  States  Treasury,  279. 
Universal  income  tax,  556. 
University,  Johns  Hopkins,  254. 
Unprofitable  exchanges,  473. 
Unseen  elements,  31. 
Unvalued  lands,  143. 
"  Ur  of  the  Chaldees,"  384. 
Usury  laws,  442,  448. 


INDEX. 


599 


Utility,  144,  161. 

Utility  and  Value,  43,  147. 

V. 

Vale  of  Sharon,  26. 

Valuable  lands,  143. 

Valuables,  7,  49,  368,  378. 

Value,  32,  G5. 

Value  acts  upon  demand,  55. 

Value  defined,  46. 

Value  of  cottons  and  silks,  459. 

Vasco  da  Gama,  27. 

Vermont,  577. 

Vermont  wools,  530. 

Vice-President  Clinton,  289. 

Virginia  in  1755,  436. 

Vital  principles  of  a  protective  tariff, 

three,  486. 
Vital  principles  of  a  revenue  tariff, 

three,  483. 
Voluntary  associations,  22(5. 

W. 

"  Wages,"  161,  184. 
Wages-portion,  192,  257. 
"Wages-question,"  163. 
Wages,  the  leavings  of  profits,  235. 
Walker,  Francis  A.,  163,  185. 
Walker,  J.  H.,  340. 
Walker's  "Money,"  382. 
"  Walking-delegate,"  265. 


Waltham,  497. 

Wampum,  386. 

War  debt,  353. 

Washington,  210. 

Washington's  inauguration  suit,  510. 

Water  from  the  spring,  60. 

Waterfall,  87. 

"  Water-twist,"  109. 

Ways  and  means,  355,  487. 

"  Wealth,"  32. 

"  Wealth  of  Nations,"  398,  536. 

Webster,  Daniel,  88, 187,  573. 

Wells,  David  A.,  571. 

West  of  Europe,  19. 

Wfhigs,  292. 

Whitman,  William,  516. 

Whittier,  258,  500. 

Will,  64. 

William  and  Mary,  reign  of,  292,  392, 

423. 

Wiltshire  laborer,  223. 
Wolfe,  General,  207. 
Wool,  105. 

Wool  and  woollen  industry,  563,  581. 
Wool  and  woollens  tariff,  529,  533. 
Wool  manufacturers,  516. 
Worn-out  farms  of  New  England,  155. 
Wright,  C.  D.,  268,  528. 

Y. 

Yard-stick,  378. 
York  shilling,  424. 


Typography  by  J.  S.  Gushing  &  Co.,  Boston. 
Prcsswork  by  Berwick  &  Smith,  Boston. 


TWO    EARLIER  WORKS 

By  PROK.  PERRY. 


INTRODUCTION   TO   POLITICAL 
ECONOMY. 

Revised  Edition.     12mo,  $1.5O. 


POLITICAL   ECONOMY. 

Eighteenth  Edition.     Rewritten  and  Enlarged. 
Crown  8vo,  $2.5O. 


Prof.  Perry's  most  elementary  text-book,  Introduction 
to  Political  Economy,  presents  the  subjects  of  Value, 
Production,  Commerce,  Money,  Credit,  and  Taxation,  in 
a  way  plain  and  easily  grasped  by  young  minds,  but  at 
the  same  time  scientifically  exact.  In  his  preface  the 
author  says :  "  I  have  endeavored  so  to  lay  the  foundations 
of  Political  Economy  in  their  whole  circuit,  that  they  will 
never  need  to  be  disturbed  afterwards  by  persons  resort- 
ing to  it  for  their  early  instruction,  however  long  and 
however  far  these  persons  may  pursue  their  studies  in  this 
science." 

"This  work  is  not  meant  in  any  way  to  take  the  place  of  its  author's 
larger  treatise,  but  rather  to  occupy  a  field  which,  in  the  nature  of  the  case, 
that  work  cannot  occupy.  It  is  not  an  abridgment  of  that  work  but  a 
separate  treatise,  intended  primarily  for  the  use  of  students  and  readers 
whose  time  for  study  is  small,  but  who  wish  to  learn  the  broad  principles  of 
the  science  thoroughly  and  well,  especially  with  reference  to  the  scientific 
principles  which  are  involved  in  the  practical  discussions  of  our  time.  .  . 
.  .  We  need  scarcely  add,  with  respect  to  a  writer  so  well  known  as  he, 
that  his  thinking  is  sound  as  well  as  acute,  or  that  his  doctrines  are  those 
which  the  greatest  masters  of  political  science  have  approved." 

—  TheN.   Y.  Evening  Post. 


Prof.  Perry's  Advanced  Work. 

POLITICAL  ECONOMY. 

Eighteenth  Edition. 

Rewritten  and  Enlarged.     I  vol.,   Crown  8vo.     $2.50. 

This  book  has  passed  through  several  revisions,  to  the 
most  thorough  of  which  it  was  subjected  in  1883.  It  has 
grown  in  size,  in  symmetry  and  in  maturity  of  thought 
and  expression,  so  that  it  is  a  complete  exposition  of  the 
science,  both  historically  and  topically.  The  distinctive 
feature  of  the  work  is  its  discarding  the  term  Wealth  and 
making  Value  the  subject  of  the  science.  Original  light 
is  thrown  on  the  vexed  questions  of  Land,  Money,  and 
Credit,  and  the  whole  trend  of  the  book  is  on  the  side  of 
sound  currency  and  unrestricted  trade. 

Professor  Perry's  style  is  admirably  clear  and  racy  ;  his 
illustrations  are  forcible  and  well  chosen,  and  he  has  made 
a  subject  interesting  and  open  to  the  comprehension  of 
any  diligent  student,  which  has  often  been  left  by  writers 
vague  and  befogged  and  bewildering.  This  work  has 
stood  excellently  the  test  of  the  class  room,  and  has  been 
adopted  by  many  of  the  chief  educational  institutions  in 
this  country.  Among  them  are  Yale  College,  Bowdoin 
College,  Dartmouth,  Trinity,  Wesleyan,  University  of 
Wooster,  Dennison  University,  Rutgers  College,  New 
York  University,  Union  College,  Seton  Hall  College, 
Hampden-Sidney,  and  many  other  colleges  and  normal 
and  high  schools. 


CRITICAL   NOTICES. 

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subject,  and  that  finished  style  in  which  thought  and  language  have  become 
perfectly  adjusted  to  each  other.  The  statements  and  illustrations  convey 
the  thought  clearly  and  aptly." — Boston  Watchman. 


Perry's  Political  Economy. 

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political  economy.  I  am  not  a  little  surprised  that  a  college  professor 
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it  treats.  I  do  not  see  where  it  could  be  improved  in  matter,  or  style,  or 
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"So  far  as  I  have  been  able  to  read  it,  it  seems  to  my  humble  judgment 
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—Hon.   W.  E.  Forster,  M.P.,  Leeds,  Eng. 

"The  gem  of  your  work  is  'foreign  trade.'  It  is  the  best  thing  I  have 
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Walker,  M.C.,  Lecturer  on  Political  Economy,  Amherst  College. 

"  As  a  manual  for  general  reading  and  popular  instruction,  Prof.  Perry's 
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' '  We  cordially  recommend  this  book  to  all,  of  whatever  school  of  political 
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"  Prof.  Perry  has  certainly  produced  one  of  the  best  elementary  treatises 
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